UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________

FORM 10-Q

(Mark One)



[X]	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, ~~2018~~2019

	or

[ ]	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _________ to __________.

Commission File Number 0-10967

______________________

(Exact name of registrant as specified in its charter)



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

~~One Pierce Place,~~8750 West Bryn Mawr Avenue, Suite ~~1500~~1300

~~Itasca,~~Chicago, Illinois ~~60143-1254~~60631-3655

(Address of principal executive offices) (zip code)

______________________

Registrant's telephone number, including area code: ~~(630) 875-7463~~(708) 831-7483

~~______________________~~

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ].

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ].

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer [X]		Accelerated filer [ ]
Non-accelerated filer [ ]		Smaller reporting company [ ]
(Do not check if a smaller reporting company)		Emerging growth company [ ]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X].



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $0.01 Par Value	FMBI	The NASDAQ Stock Market

As of May ~~4, 2018,~~6, 2019, there were ~~103,084,699~~106,903,756 shares of common stock, $.01 par value, outstanding.

FIRST MIDWEST BANCORP, INC.

FORM 10-Q

TABLE OF CONTENTS



		Page
Part I.	FINANCIAL INFORMATION
~~Item~~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	7
	Notes to the Condensed Consolidated Financial Statements	9
~~Item~~ITEM 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	3839
~~Item~~ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	66
~~Item~~ITEM 4.	Controls and Procedures	67
Part II.	OTHER INFORMATION
~~Item~~ITEM 1.	Legal Proceedings	67
~~Item~~ITEM 1A.	Risk Factors	67
~~Item~~ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	68
~~Item~~ITEM 6.	Exhibits	69

Table of Contents

PART I. FINANCIAL INFORMATION ~~(Unaudited)~~

ITEM 1. FINANCIAL STATEMENTS (Unaudited)

FIRST MIDWEST BANCORP, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Amounts in thousands, except per share data)


					March 31, 2018			December 31, 2017							March 31, 2019			December 31, 2018
Assets					(Unaudited)						Assets				(Unaudited)
Cash and due from banks	Cash and due from banks				$	150,138		$	192,800		Cash and due from banks				$	186,230		$	211,189
Interest-bearing deposits in other banks	Interest-bearing deposits in other banks				84,898			153,770			Interest-bearing deposits in other banks				76,529			78,069
Trading securities, at fair value					—			20,447
Equity securities, at fair value	Equity securities, at fair value				28,513			—			Equity securities, at fair value				33,304			30,806
Securities available-for-sale, at fair value	Securities available-for-sale, at fair value				2,040,950			1,884,209			Securities available-for-sale, at fair value				2,350,195			2,272,009
Securities held-to-maturity, at amortized cost	Securities held-to-maturity, at amortized cost				13,400			13,760			Securities held-to-maturity, at amortized cost				12,842			10,176
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				80,508			69,708			Federal Home Loan Bank ("FHLB") and Federal Reserve Bank ("FRB") stock, at cost				85,790			80,302
Loans	Loans				10,676,774			10,437,812			Loans				11,569,003			11,446,783
Allowance for loan losses	Allowance for loan losses				(94,854		)	(95,729		)	Allowance for loan losses				(103,579		)	(102,219		)
Net loans	Net loans				10,581,920			10,342,083			Net loans				11,465,424			11,344,564
Other real estate owned ("OREO")	Other real estate owned ("OREO")				17,472			20,851			Other real estate owned ("OREO")				10,818			12,821
Premises, furniture, and equipment, net	Premises, furniture, and equipment, net				126,348			123,316			Premises, furniture, and equipment, net				131,014			132,502
Investment in bank-owned life insurance ("BOLI")	Investment in bank-owned life insurance ("BOLI")				281,285			279,900			Investment in bank-owned life insurance ("BOLI")				295,899			296,733
Goodwill and other intangible assets	Goodwill and other intangible assets				754,814			754,757			Goodwill and other intangible assets				808,852			790,744
Accrued interest receivable and other assets	Accrued interest receivable and other assets				219,725			221,451			Accrued interest receivable and other assets				360,872			245,734
Total assets	Total assets				$	14,379,971		$	14,077,052		Total assets				$	15,817,769		$	15,505,649
Liabilities	Liabilities										Liabilities
Noninterest-bearing deposits	Noninterest-bearing deposits				$	3,527,081		$	3,576,190		Noninterest-bearing deposits				$	3,588,943		$	3,642,989
Interest-bearing deposits	Interest-bearing deposits				7,618,941			7,477,135			Interest-bearing deposits				8,572,039			8,441,123
Total deposits	Total deposits				11,146,022			11,053,325			Total deposits				12,160,982			12,084,112
Borrowed funds	Borrowed funds				950,688			714,884			Borrowed funds				973,852			906,079
Senior and subordinated debt	Senior and subordinated debt				195,312			195,170			Senior and subordinated debt				203,984			203,808
Accrued interest payable and other liabilities	Accrued interest payable and other liabilities				218,662			248,799			Accrued interest payable and other liabilities				319,480			256,652
Total liabilities	Total liabilities				12,510,684			12,212,178			Total liabilities				13,658,298			13,450,651
Stockholders' Equity	Stockholders' Equity										Stockholders' Equity
Common stock	Common stock				1,123			1,123			Common stock				1,157			1,157
Additional paid-in capital	Additional paid-in capital				1,021,923			1,031,870			Additional paid-in capital				1,103,991			1,114,580
Retained earnings	Retained earnings				1,103,840			1,074,990			Retained earnings				1,273,245			1,192,767
Accumulated other comprehensive loss, net of tax	Accumulated other comprehensive loss, net of tax				(57,531		)	(33,036		)	Accumulated other comprehensive loss, net of tax				(32,159		)	(52,512		)
Treasury stock, at cost	Treasury stock, at cost				(200,068		)	(210,073		)	Treasury stock, at cost				(186,763		)	(200,994		)
Total stockholders' equity	Total stockholders' equity				1,869,287			1,864,874			Total stockholders' equity				2,159,471			2,054,998
Total liabilities and stockholders' equity	Total liabilities and stockholders' equity				$	14,379,971		$	14,077,052		Total liabilities and stockholders' equity				$	15,817,769		$	15,505,649

	March 31, 2018				December 31, 2017						March 31, 2019				December 31, 2018
	(Unaudited)										(Unaudited)
	Preferred		Common		Preferred			Common			Preferred		Common		Preferred			Common
	Shares		Shares		Shares			Shares			Shares		Shares		Shares			Shares
Par value	$	—	$	0.01	$	—		$	0.01
Par value per share											$	—	$	0.01	$	—		$	0.01
Shares authorized	1,000		250,000		1,000			250,000			1,000		250,000		1,000			250,000
Shares issued	—		112,353		—			112,351			—		115,675		—			115,672
Shares outstanding	—		103,092		—			102,717			—		106,900		—			106,375
Treasury shares	—		9,261		—			9,634			—		8,775		—			9,297

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,				Quarters Ended March 31,
	2018		2017		2019		2018
Interest Income
Loans	$	118,686	$	112,365	$	144,804	$	118,686
Investment securities	11,756		10,484		16,006		11,756
Other short-term investments	903		850		1,680		903
Total interest income	131,345		123,699		162,490		131,345
Interest Expense
Deposits	6,179		3,209		16,602		6,179
Borrowed funds	3,479		2,194		3,551		3,479
Senior and subordinated debt	3,124		3,099		3,313		3,124
Total interest expense	12,782		8,502		23,466		12,782
Net interest income	118,563		115,197		139,024		118,563
Provision for loan losses	15,181		4,918		10,444		15,181
Net interest income after provision for loan losses	103,382		110,279		128,580		103,382
Noninterest Income
Service charges on deposit accounts	11,652		11,365		11,540		11,652
Wealth management fees	10,958		9,660		11,600		10,958
Card-based fees, net	3,933		8,116
Card-based fees					4,378		3,933
Capital market products income					1,279		1,558
Mortgage banking income	2,397		1,888		1,004		2,397
Capital market products income	1,558		1,376
Other service charges, commissions, and fees	2,548		5,442		2,611		2,548
Other income	2,471		2,104		2,494		2,471
Total noninterest income	35,517		39,951		34,906		35,517
Noninterest Expense
Salaries and employee benefits	56,787		55,772		57,373		56,787
Net occupancy and equipment expense	13,773		12,325		14,770		13,773
Professional services	7,580		8,463		7,788		7,580
Technology and related costs	4,771		4,433		4,596		4,771
Net OREO expense	1,068		1,700		681		1,068
Other expenses	11,603		15,384		12,953		11,603
Delivering Excellence implementation costs					258		—
Acquisition and integration related expenses	—		18,565		3,691		—
Total noninterest expense	95,582		116,642		102,110		95,582
Income before income tax expense	43,317		33,588		61,376		43,317
Income tax expense	9,807		10,733		15,318		9,807
Net income	$	33,510	$	22,855	$	46,058	$	33,510
Per Common Share Data
Basic earnings per common share	$	0.33	$	0.23	$	0.43	$	0.33
Diluted earnings per common share	$	0.33	$	0.23	$	0.43	$	0.33
Dividends declared per common share	$	0.11	$	0.09	$	0.12	$	0.11
Weighted-average common shares outstanding	101,922		100,411		105,770		101,922
Weighted-average diluted common shares outstanding	101,938		100,432		105,770		101,938

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 March 31,
	2018			2017			2019			2018
Net income	$	33,510		$	22,855		$	46,058		$	33,510
Securities Available-for-Sale
Unrealized holding (losses) gains:
Unrealized holding gains (losses):
Before tax	(25,153		)	3,298			26,752			(25,153		)
Tax effect	6,972			(1,321		)	(7,451		)	6,972
Net of tax	(18,181		)	1,977			19,301			(18,181		)
Derivative Instruments
Unrealized holding gains (losses):
Before tax	522			(2,220		)	1,458			522
Tax effect	(147		)	889			(406		)	(147		)
Net of tax	375			(1,331		)	1,052			375
Total other comprehensive (loss) income	(17,806		)	646
Total other comprehensive income (loss)							20,353			(17,806		)
Total comprehensive income	$	15,704		$	23,501		$	66,411		$	15,704


	Accumulated Unrealized Loss on Securities Available- for-Sale			Accumulated Unrealized Loss on Derivative Instruments			Unrecognized Net Pension Costs			Total Accumulated Other Comprehensive Loss			Accumulated Unrealized Loss on Securities Available- for-Sale			Accumulated Unrealized Loss on Derivative Instruments			Unrecognized Net Pension Costs			Total Accumulated Other Comprehensive Loss
Balance at December 31, 2016	$	(22,645	)	$	(1,176	)	$	(17,089	)	$	(40,910	)
Other comprehensive income	1,977			(1,331		)	—			646
Balance at March 31, 2017	$	(20,668	)	$	(2,507	)	$	(17,089	)	$	(40,264	)
Balance at December 31, 2017	$	(13,976	)	$	(3,763	)	$	(15,297	)	$	(33,036	)	$	(13,976	)	$	(3,763	)	$	(15,297	)	$	(33,036	)
Adjustment to apply recent accounting pronouncements⁽¹⁾	(2,864		)	(784		)	(3,041		)	(6,689		)	(2,864		)	(784		)	(3,041		)	(6,689		)
Other comprehensive loss	(18,181		)	375			—			(17,806		)	(18,181		)	375			—			(17,806		)
Balance at March 31, 2018	$	(35,021	)	$	(4,172	)	$	(18,338	)	$	(57,531	)	$	(35,021	)	$	(4,172	)	$	(18,338	)	$	(57,531	)
Balance at December 31, 2018													$	(28,792	)	$	(2,550	)	$	(21,170	)	$	(52,512	)
Other comprehensive income													19,301			1,052			—			20,353
Balance at March 31, 2019													$	(9,491	)	$	(1,498	)	$	(21,170	)	$	(32,159	)


⁽¹⁾	As a result of accounting guidance adopted in the first quarter of 2018, certain reclassifications were made from accumulated other comprehensive loss to retained earnings as of January 1, 2018. ~~For further discussion of this guidance, see Note 2, "Recent Accounting Pronouncements."~~

See accompanying unaudited notes to the condensed consolidated financial statements.

Table of Contents

FIRST MIDWEST BANCORP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(Amounts in thousands, except per share data)

(Unaudited)


	Common Shares Outstanding		Common Stock		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Total			Common Shares Outstanding		Common Stock		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Total
Balance at December 31, 2016	81,325		$	913	$	498,937		$	1,016,674		$	(40,910	)	$	(218,534	)	$	1,257,080
Balance at December 31, 2017																				102,717		$	1,123	$	1,031,870		$	1,074,990		$	(33,036	)	$	(210,073	)	$	1,864,874
Adjustment to apply recent accounting pronouncements⁽¹⁾																				—		—		—			6,689			(6,689		)	—			—
Net income	—		—		—			22,855			—			—			22,855			—		—		—			33,510			—			—			33,510
Other comprehensive income	—		—		—			—			646			—			646
Common dividends declared ($0.09 per common share)	—		—		—			(9,126		)	—			—			(9,126		)
Acquisition, net of issuance costs	21,078		210		533,322			—			—			558			534,090
Common stock issued	2		—		53			—			—			—			53
Restricted stock activity	355		—		(12,860		)	—			—			9,108			(3,752		)
Treasury stock issued to benefit plans	(3	)	—		—			—			—			(78		)	(78		)
Share-based compensation expense	—		—		2,965			—			—			—			2,965
Balance at March 31, 2017	102,757		$	1,123	$	1,022,417		$	1,030,403		$	(40,264	)	$	(208,946	)	$	1,804,733
Balance at December 31, 2017	102,717		$	1,123	$	1,031,870		$	1,074,990		$	(33,036	)	$	(210,073	)	$	1,864,874
Adjustment to apply recent accounting pronouncements⁽¹⁾⁽²⁾	—		—		—			6,689			(6,689		)	—			—
Net income	—		—		—			33,510			—			—			33,510
Other comprehensive income	—		—		—			—			(17,806		)	—			(17,806		)
Other comprehensive loss																				—		—		—			—			(17,806		)	—			(17,806		)
Common dividends declared ($0.11 per common share)	—		—		—			(11,349		)	—			—			(11,349		)	—		—		—			(11,349		)	—			—			(11,349		)
Common stock issued	1		—		94			—			—			667			761			1		—		94			—			—			667			761
Restricted stock activity	377		—		(13,430		)	—			—			9,432			(3,998		)	377		—		(13,430		)	—			—			9,432			(3,998		)
Treasury stock issued to benefit plans	(3	)	—		22			—			—			(94		)	(72		)	(3	)	—		22			—			—			(94		)	(72		)
Share-based compensation expense	—		—		3,367			—			—			—			3,367			—		—		3,367			—			—			—			3,367
Balance at March 31, 2018	103,092		$	1,123	$	1,021,923		$	1,103,840		$	(57,531	)	$	(200,068	)	$	1,869,287		103,092		$	1,123	$	1,021,923		$	1,103,840		$	(57,531	)	$	(200,068	)	$	1,869,287
Balance at December 31, 2018																				106,375		$	1,157	$	1,114,580		$	1,192,767		$	(52,512	)	$	(200,994	)	$	2,054,998
Adjustment to apply recent accounting pronouncements⁽¹⁾⁽²⁾																				—		—		—			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		)
Acquisition, 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


⁽¹⁾	As a result of accounting guidance adopted in the first quarter of 2018, certain reclassifications were made from accumulated other comprehensive loss to retained earnings as of January 1, 2018.


⁽²⁾	As a result of accounting guidance adopted in the first quarter of 2019, the remaining deferred gain on a sale-leaseback transaction was recognized as a cumulative-effect adjustment to retained earnings as of January 1, 2019. For further discussion of this guidance, see Note 2, "Recent Accounting Pronouncements."

See accompanying unaudited notes to the condensed consolidated financial statements.

Table of Contents

FIRST MIDWEST BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollar amounts in thousands)

(Unaudited)


	Three Months Ended March 31,						Three Months Ended March 31,
	2018			2017			2019			2018
Operating Activities
Net income	$	33,510		$	22,855		$	46,058		$	33,510
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	15,181			4,918			10,444			15,181
Depreciation of premises, furniture, and equipment	3,606			3,461			4,050			3,606
Net amortization of premium on securities	3,848			4,284			2,672			3,848
Gains on sales of 1-4 family mortgages and corporate loans held-for-sale	(1,625		)	(1,414		)	(1,410		)	(1,625		)
Net losses on sales and valuation adjustments of OREO	440			689
Net (gains) losses on sales and valuation adjustments of OREO							(792		)	440
Amortization of the FDIC indemnification asset	302			302			302			302
Net losses on sales and valuation adjustments of premises, furniture, and equipment	60			113			391			60
BOLI income	(1,373		)	(1,260		)	(1,826		)	(1,373		)
Share-based compensation expense	3,367			2,965			3,679			3,367
Tax benefit related to share-based compensation	51			29			55			51
Amortization of other intangible assets	1,802			1,541			2,363			1,802
Originations of mortgage loans held-for-sale	(49,535		)	(43,132		)	(62,895		)	(49,535		)
Proceeds from sales of mortgage loans held-for-sale	65,185			55,761			58,783			65,185
Net increase in equity securities	(658		)	—			(2,498		)	(658		)
Net increase in trading securities	—			(1,210		)
Net increase in accrued interest receivable and other assets	(7,309		)	(6,767		)
Net decrease (increase) in accrued interest receivable and other assets							27,948			(7,309		)
Net decrease in accrued interest payables and other liabilities	(31,120		)	(34,934		)	(37,870		)	(31,120		)
Net cash provided by operating activities	35,732			8,201			49,454			35,732
Investing Activities
Proceeds from maturities, repayments, and calls of securities available-for-sale	70,236			80,060			77,601			70,236
Proceeds from sales of securities available-for-sale	—			210,154
Purchases of securities available-for-sale	(263,386		)	(94,766		)	(131,707		)	(263,386		)
Proceeds from maturities, repayments, and calls of securities held-to-maturity	360			4,549			162			360
Purchases of securities held-to-maturity							(2,828		)	—
Net purchases of FHLB stock	(10,800		)	16,072			(5,488		)	(10,800		)
Net increase in loans	(255,057		)	(43,771		)	(131,221		)	(255,057		)
Premiums paid on BOLI, net of proceeds from claims	(12		)	(24		)	2,660			(12		)
Proceeds from sales of OREO	3,876			5,364			2,795			3,876
Proceeds from sales of premises, furniture, and equipment	146			404			557			146
Purchases of premises, furniture, and equipment	(6,844		)	(2,891		)	(5,081		)	(6,844		)
Net cash received from acquisitions	—			41,717
Net cash (used in) provided by investing activities	(461,481		)	216,868
Net cash paid for acquisition							(11,489		)	—
Net cash used in investing activities							(204,039		)	(461,481		)
Financing Activities
Net increase in deposit accounts	92,697			104,064			76,870			92,697
Net increase (decrease) in borrowed funds	235,804			(331,085		)
Net increase in borrowed funds							67,773			235,804
Cash dividends paid	(10,288		)	(7,206		)	(12,782		)	(10,288		)
Restricted stock activity	(3,998		)	(3,830		)	(3,775		)	(3,998		)
Net cash provided by (used in) financing activities	314,215			(238,057		)
Net cash provided by financing activities							128,086			314,215
Net decrease in cash and cash equivalents	(111,534		)	(12,988		)	(26,499		)	(111,534		)
Cash and cash equivalents at beginning of period	346,570			262,148			289,258			346,570
Cash and cash equivalents at end of period	$	235,036		$	249,160		$	262,759		$	235,036

Table of Contents

FIRST MIDWEST BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS -– (Continued)

(Dollar amounts in thousands)

(Unaudited)


	Three Months Ended March 31,					Three Months Ended March 31,
	2018		2017			2019		2018
Supplemental Disclosures of Cash Flow Information:
Income taxes paid	$	116	$	(1,259	)	$	321	$	116
Interest paid to depositors and creditors	13,379		9,354			23,707		13,379
Dividends declared, but unpaid	11,246		9,163			12,728		11,246
Stock issued for acquisitions, net of issuance costs	—		534,090			3,284		—
Non-cash transfers of loans to OREO	937		683			—		937
Non-cash transfers of loans held-for-investment to loans held-for-sale	905		13,136			2,630		905
Non-cash transfer of equity securities previously classified as trading securities and securities available-for-sale	27,855		—
Non-cash transfer of trading securities and securities available-for-sale to equity securities						—		27,855
Non-cash recognition of right-of-use asset						143,561		—
Non-cash recognition of lease liability						143,561		—

See accompanying unaudited notes to the condensed consolidated financial statements.

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 ended March 31, ~~2018~~2019 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2018.~~2019.

The accounting and reporting policies of the Company and its subsidiaries conform to U.S. generally accepted accounting principles ("GAAP") and general practices within the banking industry. The accompanying consolidated financial statements do not include certain information and note disclosures required by GAAP for complete annual financial statements. Therefore, these financial statements should be read in conjunction with the Company's ~~2017~~2018 Annual Report on Form 10-K ("~~2017~~2018 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 ~~2017~~2018 10-K.

Business Combinations – Business combinations are accounted for under the acquisition method of accounting. Assets acquired and liabilities assumed are recorded at their estimated fair values as of the date of acquisition, with any excess of the purchase price of the acquisition over the fair value of the identifiable net tangible and intangible assets acquired recorded as goodwill. Alternatively, a gain is recorded if the fair value of assets purchased exceeds the fair value of liabilities assumed and consideration paid. The results of operations of the acquired business are included in the Condensed Consolidated Statements of Income from the effective date of the acquisition.

Loans – Loans held-for-investment are loans that the Company intends to hold until they are paid in full and are carried at the principal amount outstanding, including certain net deferred loan origination fees. Loan origination fees, commitment fees, and certain direct loan origination costs are deferred, and the net amount is amortized as a yield adjustment over the contractual life of the related loans or commitments and included in interest income. Fees related to letters of credit are amortized into fee income over the contractual life of the commitment. Other credit-related fees are recognized as fee income when earned. The Company's net investment in direct financing leases is included in loans and consists of future minimum lease payments and estimated residual values, net of unearned income. Interest income on loans is accrued based on principal amounts outstanding. Loans held-for-sale are carried at the lower of aggregate cost or fair value and included in other assets in the Consolidated Statements of Financial Condition.

Acquired and Covered Loans – Covered loans consists of loans acquired by the Company in Federal Deposit Insurance Corporation ("FDIC")-assisted transactions, which are covered by loss share agreements with the FDIC (the "FDIC Agreements"), under which the FDIC reimburses the Company for the majority of the losses and eligible expenses related to these assets during the coverage period. Acquired loans consist of all other loans that were acquired in business combinations that are not covered by the FDIC Agreements. Certain loans that were previously classified as covered loans are no longer covered under the FDIC Agreements, and are included in acquired loans. Covered loans and acquired loans are included within loans held-for-investment.

Acquired and covered loans are separated into (i) non-purchased credit impaired ("non-PCI") and (ii) purchased credit impaired ("PCI") loans. Non-PCI loans include loans that did not have evidence of credit deterioration since origination at the acquisition date. PCI loans include loans that had evidence of credit deterioration since origination and for which it was probable at acquisition that the Company would not collect all contractually required principal and interest payments. Evidence of credit deterioration

Table of Contents

was evaluated using various indicators, such as past due and non-accrual status. Leases and revolving loans do not qualify to be accounted for as PCI loans and are accounted for as non-PCI loans.

The acquisition adjustment related to non-PCI loans is amortized into interest income over the contractual life of the related loans. If an acquired non-PCI loan is renewed subsequent to the acquisition date, any remaining acquisition adjustment is accreted into interest income and the loan is considered a new loan that is no longer classified as an acquired loan.

PCI loans are accounted for based on estimates of expected future cash flows. To estimate the fair value, the Company generally aggregates purchased consumer loans and commercial loans into pools of loans with common risk characteristics, such as delinquency status, credit score, and internal risk ratings. The fair values of larger balance commercial loans are estimated on an individual basis. Expected future cash flows in excess of the fair value of loans at the purchase date ("accretable yield") are recorded as interest income over the life of the loans if the timing and amount of the expected future cash flows can be reasonably estimated. The non-accretable yield represents the difference between contractually required payments and the expected future cash flows determined at acquisition. Subsequent increases in expected future cash flows are offset against the allowance for credit losses to the extent an allowance has been established or otherwise recognized as interest income prospectively. The present value of any decreases in expected future cash flows is recognized by recording a charge-off through the allowance for loan losses or providing an allowance for loan losses.

90-Days Past Due Loans ~~–The~~– The Company's accrual of interest on loans is generally discontinued at the time the loan is 90 days past due unless the credit is sufficiently collateralized and in the process of renewal or collection.

Non-accrual Loans – Generally, corporate loans are placed on non-accrual status (i) when either principal or interest payments become 90 days or more past due unless the credit is sufficiently collateralized and in the process of renewal or collection, or (ii) when an individual analysis of a borrower's creditworthiness warrants a downgrade to non-accrual regardless of past due status. When a loan is placed on non-accrual status, unpaid interest credited to income in the current year is reversed, and unpaid interest accrued in prior years is charged against the allowance for loan losses. After the loan is placed on non-accrual status, all debt service payments are applied to the principal on the loan. Future interest income may only be recorded on a cash basis after recovery of principal is reasonably assured. Non-accrual loans are returned to accrual status when the financial position of the borrower and other relevant factors indicate that the Company will collect all principal and interest.

Commercial loans and loans secured by real estate are charged-off when deemed uncollectible. A loss is recorded if the net realizable value of the underlying collateral is less than the outstanding principal and interest. Consumer loans that are not secured by real estate are subject to mandatory charge-off at a specified delinquency date and are usually not classified as non-accrual prior to being charged-off. Closed-end consumer loans, which include installment, automobile, and single payment loans, are usually charged-off no later than the end of the month in which the loan becomes 120 days past due.

PCI loans are generally considered accruing loans unless reasonable estimates of the timing and amount of expected future cash flows cannot be determined. Loans without reasonable future cash flow estimates are classified as non-accrual loans, and interest income is not recognized on those loans until the timing and amount of the expected future cash flows can be reasonably determined.

Troubled Debt Restructurings ("TDRs") – A restructuring is considered a TDR when (i) the borrower is experiencing financial difficulties, and (ii) the creditor grants a concession, such as forgiveness of principal, reduction of the interest rate, changes in payments, or extension of the maturity date. Loans are not classified as TDRs when the modification is short-term or results in an insignificant delay in payments. The Company's TDRs are determined on a case-by-case basis.

The Company does not accrue interest on a TDR unless it believes collection of all principal and interest under the modified terms is reasonably assured. For a TDR to begin accruing interest, the borrower must demonstrate some level of past performance and the future capacity to perform under the modified terms. Generally, six months of consecutive payment performance under the restructured terms is required before a TDR is returned to accrual status. However, the period could vary depending on the individual facts and circumstances of the loan. An evaluation of the borrower's current creditworthiness is used to assess the borrower's capacity to repay the loan under the modified terms. This evaluation includes an estimate of expected future cash flows, evidence of strong financial position, and estimates of the value of collateral, if applicable. For TDRs to be removed from TDR status in the calendar year after the restructuring, the loans must (i) have an interest rate and terms that reflect market conditions at the time of restructuring, and (ii) be in compliance with the modified terms. If the loan was restructured at below market rates and terms, it continues to be separately reported as restructured until it is paid in full or charged-off.

Impaired Loans – Impaired loans consist of corporate non-accrual loans and TDRs. A loan is considered impaired when it is probable that the Company will not collect all contractual principal and interest. With the exception of accruing TDRs, impaired loans are classified as non-accrual and are exclusive of smaller homogeneous loans, such as home equity, 1-4 family mortgages, and installment loans. Impaired loans with balances under a specified threshold are not individually evaluated for impairment. For all other impaired loans, impairment is measured by comparing the estimated value of the loan to the recorded book value.

Table of Contents

The value of collateral-dependent loans is based on the fair value of the underlying collateral, less costs to sell. The value of other loans is measured using the present value of expected future cash flows discounted at the loan's initial effective interest rate.

Allowance for Credit Losses – The allowance for credit losses is comprised of the allowance for loan losses and the reserve for unfunded commitments, and is maintained by management at a level believed adequate to absorb estimated losses inherent in the existing loan portfolio. Determination of the allowance for credit losses is subjective since it requires significant estimates and management judgment, including the amounts and timing of expected future cash flows on impaired loans, estimated losses on pools of homogeneous loans, consideration of current economic trends, and other factors.

Loans deemed to be uncollectible are charged-off against the allowance for loan losses, while recoveries of amounts previously charged-off are credited to the allowance for loan losses. Additions to the allowance for loan losses are charged to expense through the provision for loan losses. The amount of provision depends on a number of factors, including net charge-off levels, loan growth, changes in the composition of the loan portfolio, and the Company's assessment of the allowance for loan losses based on the methodology discussed below.

Allowance for Loan Losses – The allowance for loan losses consists of (i) specific reserves for individual loans where the recorded investment exceeds the value, (ii) an allowance based on a loss migration analysis that uses historical credit loss experience for each loan category, and (iii) an allowance based on other internal and external qualitative factors.

The specific reserves component of the allowance for loan losses is based on a periodic analysis of impaired loans exceeding a fixed dollar amount. If the value of an impaired loan is less than the recorded book value, the Company either establishes a valuation allowance (i.e., a specific reserve) equal to the excess of the book value over the collateral value of the loan as a component of the allowance for loan losses or charges off the amount if it is a confirmed loss.

The general reserve component is based on a loss migration analysis, which examines actual loss experience by loan category for a rolling 8-quarter period and the related internal risk rating for corporate loans. The loss migration analysis is updated quarterly, primarily using actual loss experience. This component is then adjusted based on management's consideration of many internal and external qualitative factors, including:

Changes in the composition of the loan portfolio, trends in the volume of loans, and trends in delinquent and non-accrual loans that could indicate that historical trends do not reflect current conditions.

Changes in credit policies and procedures, such as underwriting standards and collection, charge-off, and recovery practices.

Changes in the experience, ability, and depth of credit management and other relevant staff.

Changes in the quality of the Company's loan review system and Board of Directors oversight.

The effect of any concentration of credit and changes in the level of concentrations, such as loan type or risk rating.

Changes in the value of the underlying collateral for collateral-dependent loans.

Changes in the national and local economy that affect the collectability of various segments of the portfolio.

The effect of other external factors, such as competition and legal and regulatory requirements, on the Company's loan portfolio.

The allowance for loan losses also consists of an allowance on acquired and covered non-PCI and PCI loans. No allowance for loan losses is recorded on acquired loans at the acquisition date. Subsequent to the acquisition date, an allowance for credit losses is established as necessary to reflect credit deterioration. The acquired non-PCI allowance is based on management's evaluation of the acquired non-PCI loan portfolio giving consideration to the current portfolio balance, including the remaining acquisition adjustments, maturity dates, and overall credit quality. The allowance for covered non-PCI loans is calculated in the same manner as the general reserve component based on a loss migration analysis as discussed above. The acquired and covered PCI allowance reflects the difference between the carrying value and the discounted expected future cash flows of the acquired and covered PCI loans. On a periodic basis, the adequacy of this allowance is determined through a re-estimation of expected future cash flows on all of the outstanding acquired and covered PCI loans using either a probability of default/loss given default ("PD/LGD") methodology or a specific review methodology. The PD/LGD model is a loss model that estimates expected future cash flows using a probability of default curve and loss given default estimates. Acquired non-PCI loans that have renewed subsequent to the respective acquisition dates are no longer classified as acquired loans. Instead, they are included in the general loan population and allocated an allowance based on a loss migration analysis.

Reserve for Unfunded Commitments – The Company also maintains a reserve for unfunded commitments, including letters of credit, for the risk of loss inherent in these arrangements. The reserve for unfunded commitments is estimated using the loss migration analysis from the allowance for loan losses, adjusted for probabilities of future funding requirements. The reserve for unfunded commitments is included in other liabilities in the Consolidated Statements of Financial Condition.

The establishment of the allowance for credit losses involves a high degree of judgment given the difficulty of assessing the factors impacting loan repayment and estimating the timing and amount of losses. While management utilizes its best judgment and

Table of Contents

information available, the adequacy of the allowance for credit losses depends on a variety of factors beyond the Company's control, including the performance of its loan portfolio, the economy, changes in interest rates and property values, and the interpretation of loan risk classifications by regulatory authorities.

Lease Obligations – The Company leases certain premises under non-cancelable operating leases in the normal course of business operations. These lease obligations result in the recognition of right-of-use assets and associated lease liabilities. The amount of right-of-use assets and associated lease liabilities recorded is based on the present value of future minimum lease payments. Right-of-use assets are amortized on a straight-line basis over the estimated useful lives of the related premises and interest associated with the net present value of future minimum lease payments is included in net occupancy and equipment expense in the consolidated financial statements.

Derivative Financial Instruments – To provide derivative products to customers and in the ordinary course of business, the Company enters into derivative transactions as part of its overall interest rate risk management strategy to minimize significant unplanned fluctuations in earnings and expected future cash flows caused by interest rate volatility. All derivative instruments are recorded at fair value as either other assets or other liabilities in the Consolidated Statements of Financial Condition. Subsequent changes in a derivative's fair value are recognized in earnings unless specific hedge accounting criteria are met.

On the date the Company enters into a derivative contract, the derivative is designated as a fair value hedge, a cash flow hedge, or a non-hedge derivative instrument. Fair value hedges are designed to mitigate exposure to changes in the fair value of an asset or liability attributable to a particular risk, such as interest rate risk. Cash flow hedges are designed to mitigate exposure to variability in expected future cash flows to be received or paid related to an asset, liability, or other type of forecasted transaction. The Company formally documents all relationships between hedging instruments and hedged items, including its risk management objective and strategy at inception.

At the hedge's inception, a formal assessment is performed to determine the effectiveness of the derivative in offsetting changes in the fair values or expected future cash flows of the hedged items in the current period and prospectively. If a derivative instrument designated as a hedge is terminated or ceases to be highly effective, hedge accounting is discontinued prospectively, and the gain or loss is amortized into earnings. For fair value hedges, the gain or loss is amortized over the remaining life of the hedged asset or liability. For cash flow hedges, the gain or loss is amortized over the same period that the forecasted hedged transactions impact earnings. If the hedged item is disposed of, any fair value adjustments are included in the gain or loss from the disposition of the hedged item. If the forecasted transaction is no longer probable, the gain or loss is included in earnings immediately.

For fair value hedges, changes in the fair value of the derivative instruments, as well as changes in the fair value of the hedged item, are recognized in earnings in the same income statement line item as the earnings effect of the hedged item. For cash flow hedges, the effective portion of the change in fair value of the derivative instrument is reported as a component of accumulated other comprehensive loss and is reclassified to earnings when the hedged transaction is reflected in earnings.

2. RECENT ACCOUNTING PRONOUNCEMENTS

Adopted Accounting Pronouncements

~~Revenue from Contracts with Customers:~~Leases: In ~~May~~February of ~~2014,~~2016, the Financial Accounting Standards Board ("FASB") issued guidance that requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In March of 2016, the FASB issued an amendment to this guidance to clarify the implementation of guidance on principal versus agent consideration. Additional amendments to clarify the implementation guidance on the identification of performance obligations and licensing were issued in April of 2016 and narrow-scope improvements and practical expedients were issued in May of 2016. The guidance is effective for annual and interim reporting periods beginning on or after December 15, 2017, and must be applied either retrospectively or using the modified retrospective approach.

The Company's revenue is comprised of net interest income on financial assets and liabilities, which is excluded from the scope of this guidance, and noninterest income. The primary sources of revenue within noninterest income are service charges on deposit accounts, wealth management fees, card-based fees, and merchant servicing fees. The adoption of this guidance on January 1, 2018, using the modified retrospective approach, affected how the Company presents merchant servicing fees, merchant card expenses, card-based fees, and cardholder expenses, which are presented on a gross basis within noninterest income and noninterest expense for the prior period and are presented on a net basis within noninterest income for the current period. Total expenses of $3.7 million for the quarter ended March 31, 2018 were netted in noninterest income. The adoption of this guidance did not impact net income, therefore, a cumulative effect adjustment to opening retained earnings was not deemed necessary. Consistent with the modified retrospective approach, the Company did not adjust prior period amounts for the reclassification of merchant card expenses and cardholder expenses.

~~A description of the Company's revenue streams accounted for under the scope of this guidance follows:~~

~~Service Charges on Deposit Accounts –~~ Service charges on deposit accounts consist of account analysis fees (net fees earned on analyzed business and public checking accounts), monthly service fees, and other deposit account related fees. The Company's performance obligation for account analysis fees and monthly service fees is generally satisfied, and the related revenue recognized, over the period in which the service is provided. Other deposit account related fees are largely transactional based and therefore, the Company's performance obligation is satisfied, and related revenue recognized, at a point in time. Payment for service charges

~~Table of Contents~~

on deposit accounts is primarily received as a direct charge to customers' accounts. As a result of the adoption of this guidance, there was no impact to the method of recognizing revenue related to service charges on deposit accounts for the quarter ended March 31, 2018.

~~Wealth management fees –~~ Wealth management fees represents quarterly fees due from wealth management customers as consideration for managing the customers' assets. Wealth management services include custody of assets, investment management, escrow services, fees for trust services and similar fiduciary activities. Revenue is recognized when our performance obligation is completed each quarter, which is generally the time that payment is received. Also included are fees received from a third-party broker-dealer as part of a revenue-sharing agreement. These fees are paid to us by the third-party on a quarterly basis and recognized ratably throughout the quarter as our performance obligation is satisfied. As a result of the adoption of this guidance, there was no impact to the method of recognizing revenue related to wealth management fees for the quarter ended March 31, 2018.

~~Card-based fees, net –~~ ~~Card-based fees, net consists of debit and credit card interchange fees for processing transactions, as well as, various fees for automated teller machine~~Accounting Standards Update ("~~ATM"~~ASU") and point-of-sale transactions processed through the related networks. Interchange, ATM, and point-of-sale fees from cardholder transactions represent a percentage of the underlying transaction value or a flat fee and are recognized daily, in connection with the transaction processing services provided to the cardholder. Card-based fees are presented net of certain contract costs associated with the debit, credit and ATM card interchange networks. As a result of the adoption of this guidance, $1.8 million of cardholder expenses are netted against card-based fees for the quarter ended March 31, 2018.

~~Merchant servicing fees, net –~~ Merchant servicing fees, net is included in other service charges, commissions, and fees in the Consolidated Statements of Income. The Company acts in an agency capacity with respect to its merchants to process their debit and credit card transactions, deriving revenue from assisting another entity in transactions with our customers. Merchant servicing fees represent a percentage of the underlying net transaction volume or a flat fee and are recognized monthly. Merchant servicing fees are presented net of certain contract costs associated with the third-party merchant processing. As a result of the adoption of this guidance, $1.9 million of merchant card expenses are netted against merchant servicing fees for the quarter ended March 31, 2018.

~~Amendments to Guidance on Classifying and Measuring Financial Instruments:~~ In January of 2016, the FASB issued guidance that will require entities to measure equity investments that do not result in consolidation and are not accounted for under the equity method at fair value. Any subsequent changes in fair value will be recognized in net income unless the investments qualify for a new practicability exception. Equity securities totaling $27.9 million are no longer classified as trading securities or securities available-for-sale. This guidance also requires entities to adjust the fair value disclosures for financial instruments carried at amortized cost from an entry price to an exit price. No changes were made to the guidance for classifying and measuring investments in debt securities and loans. Except as discussed above, the adoption of this guidance on January 1, 2018 did not materially impact the Company's financial condition, results of operations, or liquidity.

~~Classification of Certain Cash Receipts and Cash Payments:~~ In August of 2016, the FASB issued guidance clarifying certain cash flow presentation and classification issues to reduce diversity in practice. The adoption of this guidance on January 1, 2018 did not materially impact the Company's financial condition, results of operations, or liquidity.

~~Income Taxes:~~ In October of 2016, the FASB issued guidance that requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The adoption of this guidance on January 1, 2018 did not materially impact the Company's financial condition, results of operations, or liquidity.

~~Clarifying the Definition of a Business:~~ In January of 2017, the FASB issued guidance that clarifies the definition of a business to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The adoption of this guidance on January 1, 2018 did not impact the Company's financial condition, results of operations, or liquidity.

~~Presentation of Defined Benefit Retirement Plan Costs:~~ In March of 2017, the FASB issued guidance that changes how employers that sponsor defined pension and or other postretirement benefit plans present the net periodic benefit cost in the income statement. Employers are required to present the service cost component of net periodic benefit cost in the same income statement line item as other employee compensation costs arising from services rendered during the period. Other components of net periodic benefit cost are required to be presented separately from the line item(s) that includes the service cost. The adoption of this guidance on January 1, 2018 did not materially impact the Company's financial condition, results of operations, or liquidity.

~~Share-based Payment Award Modifications:~~ In May of 2017, the FASB issued guidance to reduce diversity in practice by clarifying when changes to the terms or conditions of a share-based payment award must be accounted for as a modification. The adoption of this guidance on January 1, 2018 did not materially impact the Company's financial condition, results of operations, or liquidity.

~~Table of Contents~~

~~Derivatives and Hedging:~~ In August of 2017, the FASB issued guidance to better align the financial reporting related to hedging activities with the economic objectives of those activities and to simplify the application of current hedge accounting guidance. Entities are required to apply the guidance using a modified retrospective method as of the period of adoption. This guidance is effective for annual and interim periods beginning after December 31, 2018. Early adoption is permitted, and the Company elected to do so on January 1, 2018, which did not materially impact the Company's financial condition, results of operations, or liquidity.

~~Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income:~~ ~~In February of 2018, the FASB issued guidance that requires a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the~~ ~~Tax Cuts and Jobs Act of 2017~~. Entities electing the reclassification are required to apply the guidance either at the beginning of the period of adoption or retrospectively for all periods impacted. This guidance is effective for annual and interim periods beginning after December 15, 2018. Early adoption is permitted and the Company elected to do so on January 1, 2018, which resulted in the reclassification of $6.8 million of stranded tax effects from accumulated other comprehensive loss to retained earnings as of the beginning of the period of adoption.

~~Accounting Pronouncements Pending Adoption~~

~~Leases:~~ ~~In February of 2016, the FASB issued guidance~~2016-02 to increase transparency and comparability across entities for leasing arrangements. This guidance requires lessees to recognize assets and liabilities for most leases. For lessors, this guidance modifies the lease classification criteria and the accounting for sales-type and direct financing leases. In addition, this guidance clarifies criteria for the determination of whether a contract is or contains a lease. This guidance is effective for annual and interim periods beginning after December 15, 2018. ~~Early~~

The Company adopted this guidance on January 1, 2019, which resulted in the recognition of $143.6 million of right-of-use assets and additional associated lease liabilities for its operating leases. The amount of right-of-use assets and associated lease liabilities recorded upon adoption was based on the present value of future minimum lease payments, the amount of which depended on the population of leases in effect at the date of adoption. This guidance also applies to the Company's net investment in direct financing leases, which is ~~permitted.~~included in loans, but did not have a material impact.

~~During 2016,~~ The Company has elected certain practical expedients contained in this guidance, which, among other provisions, allowed the Company to not reassess the historical lease classification, initial direct costs, or existing contracts for the inclusion of leases. The Company has also elected the practical expedients for the use of hindsight in determining the lease term and the right-of-use assets, as well as an election not to apply the recognition requirements of the guidance to leases with terms of 12 months or less. The application of hindsight practical expedient resulted in the determination that most renewal options would not be reasonably certain in determining the expected lease term.

First Midwest Bank (the "Bank") entered into a sale-leaseback transaction in 2016 that resulted in a deferred ~~gain of $82.5 million, with $73.1 million remaining as of March 31, 2018.~~gain. Upon adoption of this guidance, the remaining deferred gain ~~will be~~of $47.3 million after tax was recognized immediately as a cumulative-effect

Table of Contents

adjustment to equity. For additional discussion of the sale-leaseback transaction, see Note 8 ~~"Premises, Furniture,~~"Lease Obligations." The adoption of this guidance was applied retrospectively at the beginning of the period of adoption through a cumulative-effect adjustment and ~~Equipment"~~did not materially impact the Company's results of operations or liquidity, but did result in a material increase in assets, liabilities, and equity.

Premium Amortization on Purchased Callable Debt Securities: In March of 2017, the FASB issued ASU 2017-08 that shortens the amortization period for the premium on certain purchased callable debt securities to the ~~Consolidated Financial Statements in the Company's 2017 10-K. Management~~earliest call date. This guidance is ~~evaluating the new~~effective for annual and interim periods beginning after December 15, 2018. The adoption of this guidance ~~and the additional~~on January 1, 2019 did not materially impact to the Company's financial condition, results of operations, or liquidity.

Improvements to Nonemployee Share-based Payment Accounting: In June of 2018, the FASB issued ASU 2018-07 that aligns the measurement and classification guidance for share-based payments to nonemployees with the guidance for share-based payments to employees. This guidance is effective for annual and interim periods beginning after December 15, 2018. The adoption of this guidance on January 1, 2019 did not materially impact the Company's financial condition, results of operations, or liquidity.

Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract: In August of 2018, the FASB issued ASU 2018-15 to reduce diversity in practice by clarifying when implementation costs are required to be capitalized in a cloud computing arrangement that is a service contract. This guidance is effective for annual and interim periods beginning after December 15, 2019. The early adoption of this guidance on January 1, 2019 did not materially impact the Company's financial condition, results of operations, or liquidity.

Derivatives and Hedging, Inclusion of the Secured Overnight Financing Rate ("SOFR") Overnight Index Swap Rate as a Benchmark Interest Rate for Hedge Accounting Purposes: In October of 2018, the FASB issued ASU 2018-16 adding the overnight index swap rate based on the SOFR to the list of United States benchmark interest rates eligible for hedge accounting purposes. This guidance is effective for annual and interim periods beginning after December 15, 2018. The adoption of this guidance on January 1, 2019 did not materially impact the Company's financial condition, results of operations, or liquidity.

Accounting Pronouncements Pending Adoption

Measurement of Credit Losses on Financial Instruments: In June of 2016, the FASB issued ~~guidance~~ASU 2016-13 that will require entities to present financial assets measured at amortized cost at the net amount expected to be collected, considering an entity's current estimate of all expected credit losses. In addition, credit losses relating to available-for-sale debt securities will be required to be recorded through an allowance for credit losses, with changes in credit loss estimates recognized through current earnings. This guidance is effective for annual and interim periods beginning after December 15, 2019. Early adoption is permitted, but not for periods beginning before December 15, 2018. Management is evaluating the ~~new~~ guidance and the impact to the Company's financial condition, results of operations, ~~and~~or liquidity.

Accounting for Goodwill Impairment: In January of 2017, the FASB issued ~~guidance~~ASU 2017-04 that simplifies the accounting for goodwill impairment for all entities. The new guidance eliminates the requirement to calculate the implied fair value of goodwill using the second step of the quantitative two-step goodwill impairment model prescribed under current accounting guidance. Under the new guidance, if a reporting unit's carrying amount exceeds its fair value, an entity will record an impairment charge based on that difference. This guidance is effective for annual and interim goodwill impairment testing dates beginning after December 15, 2019. Early adoption is permitted for annual and interim goodwill impairment testing dates after January 1, 2017. Management does not expect the adoption of this guidance will materially impact the Company's financial condition, results of operations, or liquidity.

~~Premium Amortization on Purchased Callable Debt Securities:~~Changes to the Disclosure Requirements for Fair Value Measurement: In ~~March~~August of ~~2017,~~2018, the FASB issued ~~guidance~~ASU 2018-13 that ~~shortens~~eliminates, modifies, and adds to certain fair value measurement disclosure requirements associated with the ~~amortization period for the premium on certain purchased callable debt securities to the earliest call date.~~three-tiered fair value hierarchy. This guidance is effective for annual and interim periods beginning after December 15, ~~2018.~~2019. Early adoption is permitted. Management does not expect the adoption of this guidance will materially impact the Company's financial condition, results of operations, or liquidity.

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. Management does not expect the adoption of this guidance will materially impact the Company's financial condition, results of operations, or liquidity.

1413

Table of Contents

3. ACQUISITIONS

Pending Acquisitions

Bridgeview Bancorp, Inc.

On December 6, 2018, the Company entered into a merger agreement to acquire Bridgeview Bancorp, Inc. ("Bridgeview"), the holding company for Bridgeview Bank Group. As of December 31, 2018, Bridgeview had approximately $1.3 billion of assets, $1.0 billion of deposits, and $800.0 million of loans, excluding Bridgeview's mortgage division, which the Company is not acquiring. The merger agreement provides for a fixed exchange ratio of 0.2767 shares of Company common stock, plus $1.79 in cash, for each share of Bridgeview common stock, subject to certain adjustments. The Company anticipates issuing approximately 4.7 million shares at closing. As of the date of announcement, the overall transaction was valued at approximately $145 million. The acquisition is subject to the completion of various closing conditions, and is anticipated to close on May 9, 2019.

Completed Acquisitions

~~Standard Bancshares,~~Northern Oak Wealth Management, Inc.

On January ~~6, 2017,~~16, 2019, the Company completed its acquisition of ~~Standard Bancshares,~~Northern Oak Wealth Management, Inc. ("~~Standard"~~Northern Oak"), a registered investment adviser based in Milwaukee, Wisconsin with approximately $800.0 million of assets under management at closing. The fair value adjustments, including goodwill, associated with this transaction remain preliminary and may change as the Company continues to finalize the fair value of the assets and liabilities acquired.

Northern States Financial Corporation

On October 12, 2018, the Company completed its acquisition of Northern States Financial Corporation ("Northern States"), the holding company for ~~Standard~~NorStates Bank, based in Waukegan, Illinois. At closing, the Company acquired $578.7 million of total assets, $463.2 million of deposits, and ~~Trust Company. Pursuant to~~$284.9 million of loans. Under the terms of the merger agreement, on ~~January 6, 2017,~~October 12, 2018, each outstanding share of ~~Standard~~Northern States common stock, excluding shares held in treasury or otherwise owned by the Company or Northern States, was canceled and converted into the right to receive ~~0.4350~~0.0363 of a share of Company common stock. ~~Based on~~The merger consideration totaled $83.3 million and resulted in the ~~closing price of~~Company issuing 3,310,912 shares of Company common stock of $25.34 on that date, as reported by NASDAQ, the value of the merger consideration per share of Standard common stock was $11.02. Each outstanding Standard stock settled right was redeemed for cash, and each outstanding Standard stock option and each share of Standard phantom stock was canceled and terminated in exchange for the right to receive cash, in each case, pursuant to the terms of the merger agreement. This resulted in an overall transaction value of approximately $580.7 million, which consisted of 21,057,085 shares of Company common stock and $47.1 million in cash.stock. Goodwill of ~~$345.3~~$30.5 million associated with the acquisition was recorded by the Company. All Northern States operating systems were converted during the fourth quarter of 2018.

During the first quarter of ~~2017.~~

~~During 2017,~~2019, the Company ~~finalized~~updated the fair value adjustments associated with the ~~Standard transactions.~~

~~Premier Asset Management LLC~~

On February 28, 2017, the Company completed its acquisition of Premier Asset Management LLC ("Premier"), a registered investment advisor based in Chicago, Illinois. At the close of the acquisition, the Company acquired approximately $550.0 million of trust assets under management.

~~During the first quarter of 2018, the Company finalized the fair value~~Northern States transaction. The adjustments ~~associated with the Premier transaction, which required a measurement period adjustment of $1.9 million to increase goodwill. This adjustment was~~were recognized in the current period in accordance with accounting guidance applicable to business combinations. 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.

Table of Contents

The following table presents the assets acquired and liabilities assumed, net of the fair value adjustments, in the Northern States transaction 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)



	Northern States
	October 12, 2018
Assets
Cash and due from banks and interest-bearing deposits in other banks	$	160,145
Equity securities	3,915
Securities available-for-sale	47,149
FHLB and FRB stock	554
Loans	284,924
OREO	2,549
Investment in BOLI	11,104
Goodwill	30,518
Other intangible assets	12,230
Premises, furniture, and equipment	5,414
Accrued interest receivable and other assets	20,170
Total assets	$	578,672
Liabilities
Noninterest-bearing deposits	$	346,714
Interest-bearing deposits	116,446
Total deposits	463,160
Borrowed funds	18,218
Senior and subordinated debt	8,038
Accrued interest payable and other liabilities	5,953
Total liabilities	495,369
Consideration Paid
Common stock (2018 - 3,310,912, shares issued at $25.16 per share), net of issuance costs	83,303
Cash paid	—
Total consideration paid	83,303
	$	578,672

Expenses related to the acquisition and integration of completed and pending transactions totaled $3.7 million during the quarter ended March 31, 2019, and are reported as a separate component within noninterest expense in the Condensed Consolidated Statements of Income.

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 ~~2017~~2018 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, 2018																As of December 31, 2017														As of March 31, 2019																As of December 31, 2018
		Amortized Cost				Gross Unrealized								Fair Value				Amortized Cost			Gross Unrealized							Fair Value				Amortized Cost				Gross Unrealized								Fair Value				Amortized Cost				Gross Unrealized								Fair Value
					Gains				Losses								Gains				Losses					Gains						Amortized Cost			Losses						Gains			Fair Value				Amortized Cost			Losses									Fair Value
Securities Available-for-Sale	Securities Available-for-Sale													Fair Value				Amortized Cost																Securities Available-for-Sale
U.S. treasury securities		Amortized Cost	$	50,487			$	—			$	(296	)		$	50,191			$	46,529		$	—		$	(184	)	Fair Value		$	46,345			$	40,938			$	47			$	(93	)		$	40,892			$	37,925			$	17			$	(175	)		$	37,767
U.S. agency securities		160,936				146				(1,544		)		159,538				157,636			197			(986		)		156,847				129,486				93				(1,258		)		128,321				144,125				45				(1,607		)		142,563
Collateralized mortgage obligations ("CMOs")		1,213,796				147				(32,208		)		1,181,735				1,113,019			121			(17,954		)		1,095,186				1,365,007				6,107				(14,084		)		1,357,030				1,336,531				3,362				(24,684		)		1,315,209
Other mortgage-backed securities ("MBSs")		434,485				191				(11,314		)		423,362				373,676			201			(4,334		)		369,543				491,689				1,651				(6,314		)		487,026				477,665				520				(11,251		)		466,934
Municipal securities		217,855				170				(4,041		)		213,984				209,558			693			(1,260		)		208,991				231,790				2,289				(603		)		233,476				229,600				461				(2,874		)		227,187
Corporate debt securities		12,161				—				(21		)		12,140				—			—			—				—				104,444				360				(1,354		)		103,450				86,074				—				(3,725		)		82,349
Equity securities⁽¹⁾		—				—				—				—				7,408			194			(305		)		7,297
Total securities available-for-sale		$	2,089,720			$	654			$	(49,424	)		$	2,040,950			$	1,907,826		$	1,406		$	(25,023	)		$	1,884,209			$	2,363,354			$	10,547			$	(23,706	)		$	2,350,195			$	2,311,920			$	4,405			$	(44,316	)		$	2,272,009
Securities Held-to-Maturity	Securities Held-to-Maturity																														Securities Held-to-Maturity
Municipal securities		$	13,400			$	—			$	(2,113	)		$	11,287			$	13,760		$	—		$	(1,747	)		$	12,013			$	12,842			$	—			$	(187	)		$	12,655			$	10,176			$	—			$	(305	)		$	9,871
Equity Securities⁽¹⁾														$	28,513													$	—
Trading Securities⁽¹⁾														$	—													$	20,447
Equity Securities																																												$	33,304															$	30,806


⁽¹⁾	As a result of accounting guidance adopted in the first quarter of 2018, equity securities are no longer presented within trading securities or securities available-for-sale and are now presented within equity securities in the Consolidated Statements of Financial Condition for the current period. For further discussion of this guidance, see Note 2, "Recent Accounting Pronouncements."

Remaining Contractual Maturity of Securities

(Dollar amounts in thousands)


	As of March 31, 2018								As of March 31, 2019
	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	$	130,003	$	128,358	$	1,611	$	1,357	$	118,322	$	118,201	$	10,336	$	10,186
After one year to five years	184,271		181,940		5,459		4,598		156,648		156,488		2,190		2,158
After five years to ten years	127,155		125,546		2,195		1,849		231,688		231,450		316		311
After ten years	10		9		4,135		3,483		—		—		—		—
Securities that do not have a single contractual maturity date	1,648,281		1,605,097		—		—		1,856,696		1,844,056		—		—
Total	$	2,089,720	$	2,040,950	$	13,400	$	11,287	$	2,363,354	$	2,350,195	$	12,842	$	12,655

The carrying value of securities available-for-sale that were pledged to secure deposits or for other purposes as permitted or required by law totaled ~~$1.0~~$1.3 billion ~~for~~as of March 31, ~~2018~~2019 and ~~$1.1~~$1.2 billion ~~for~~as of December 31, ~~2017.~~2018. No securities held-to-maturity were pledged as of March 31, ~~2018~~2019 or December 31, ~~2017.~~

~~Table of Contents~~

2018.

During the quarters ended March 31, ~~2018~~2019 and ~~2017 there were no material gross trading gains (losses) and~~2018 there were no realized gains ~~(losses)~~ on securities available-for-sale.

Accounting guidance requires that the credit portion of an ~~other-than-temporary impairment ("OTTI")~~OTTI charge be recognized through income. If a decline in fair value below carrying value is not attributable to credit deterioration and the Company does not intend to sell the security or believe it would not be more likely than not required to sell the security prior to recovery, the Company records the non-credit related portion of the decline in fair value in other comprehensive ~~income.~~income (loss).

There was no outstanding balance of OTTI previously recognized on securities available-for-sale as of ~~both~~either March 31, ~~2018 and~~2019 or December 31, ~~2017.~~2018. During the quarters ended March 31, 2019 and 2018 ~~and 2017 there were~~ no ~~changes to the balance of~~ OTTI ~~related to~~was recognized on securities available-for-sale.

Table of Contents

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, ~~2018~~2019 and December 31, ~~2017.~~2018.

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, 2018
As of March 31, 2019															As of March 31, 2019
Securities Available-for-Sale	Securities Available-for-Sale														Securities Available-for-Sale
U.S. treasury securities		22	$	32,744	$	222	$	60,664	$	74	$	93,408	$	296		12	$	4,987	$	1	$	19,902	$	92	$	24,889	$	93
U.S. agency securities		77	69,433		519		17,446		1,025		86,879		1,544			64	20,991		212		90,081		1,046		111,072		1,258
CMOs		238	524,167		9,432		621,039		22,776		1,145,206		32,208			221	27,366		21		904,014		14,063		931,380		14,084
MBSs		98	190,166		3,677		212,297		7,637		402,463		11,314			101	16,064		36		347,006		6,278		363,070		6,314
Municipal securities		447	74,891		1,210		103,638		2,831		178,529		4,041			188	123		—		84,305		603		84,428		603
Corporate debt securities		3	8,985		21		—		—		8,985		21			16	52,947		653		31,782		701		84,729		1,354
Total		885	$	900,386	$	15,081	$	1,015,084	$	34,343	$	1,915,470	$	49,424		602	$	122,478	$	923	$	1,477,090	$	22,783	$	1,599,568	$	23,706
Securities Held-to-Maturity	Securities Held-to-Maturity														Securities Held-to-Maturity
Municipal securities		8	$	—	$	—	$	11,287	$	2,113	$	11,287	$	2,113		6	$	—	$	—	$	12,655	$	187	$	12,655	$	187
As of December 31, 2017
As of December 31, 2018
Securities Available-for-Sale	Securities Available-for-Sale														Securities Available-for-Sale
U.S. treasury securities		20	$	19,918	$	87	$	26,427	$	97	$	46,345	$	184		17	$	15,894	$	57	$	13,886	$	118	$	29,780	$	175
U.S. agency securities		72	66,899		300		58,021		686		124,920		986			74	34,263		320		93,227		1,287		127,490		1,607
CMOs		211	365,131		3,265		633,227		14,689		998,358		17,954			234	171,901		1,671		863,747		23,013		1,035,648		24,684
MBSs		86	126,136		902		210,017		3,432		336,153		4,334			118	135,791		1,715		284,273		9,536		420,064		11,251
Municipal securities		265	35,500		479		81,360		781		116,860		1,260			423	60,863		558		109,935		2,316		170,798		2,874
Equity securities⁽¹⁾		2	391		214		6,386		91		6,777		305
Corporate debt securities																16	82,349		3,725		—		—		82,349		3,725
Total		656	$	613,975	$	5,247	$	1,015,438	$	19,776	$	1,629,413	$	25,023		882	$	501,061	$	8,046	$	1,365,068	$	36,270	$	1,866,129	$	44,316
Securities Held-to-Maturity	Securities Held-to-Maturity														Securities Held-to-Maturity
Municipal securities		8	$	—	$	—	$	12,013	$	1,747	$	12,013	$	1,747		5	$	—	$	—	$	9,871	$	305	$	9,871	$	305


⁽¹⁾	As a result of accounting guidance adopted in the first quarter of 2018, equity securities are no longer presented within securities available-for-sale and are now presented within equity securities in the Consolidated Statements of Financial Condition for the current period. For further discussion of this guidance, see Note 2, "Recent Accounting Pronouncements."

Substantially all of the Company's CMOs and other MBSs are either backed by U.S. government-owned agencies or issued by U.S. government-sponsored enterprises. Municipal securities are issued by municipal authorities, and the majority are supported by third-party insurance or some other form of credit enhancement. Management does not believe any of these securities with unrealized losses as of March 31, ~~2018~~2019 represent OTTI related to credit deterioration. These unrealized losses are attributed to changes in interest rates and temporary market movements. The Company does not intend to sell these securities and it is not more

~~Table of Contents~~

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, 2018		December 31, 2017		March 31, 2019		December 31, 2018
Commercial and industrial	$	3,659,066	$	3,529,914	$	4,183,262	$	4,120,293
Agricultural	435,734		430,886		438,461		430,928
Commercial real estate:
Office, retail, and industrial	1,931,202		1,979,820		1,806,892		1,820,917
Multi-family	695,830		675,463		752,943		764,185
Construction	585,766		539,820		683,475		649,337
Other commercial real estate	1,363,238		1,358,515		1,309,878		1,361,810
Total commercial real estate	4,576,036		4,553,618		4,553,188		4,596,249
Total corporate loans	8,670,836		8,514,418		9,174,911		9,147,470
Home equity	881,534		827,055		862,068		851,607
1-4 family mortgages	798,902		774,357		1,086,264		1,017,181
Installment	325,502		321,982		445,760		430,525
Total consumer loans	2,005,938		1,923,394		2,394,092		2,299,313
Total loans	$	10,676,774	$	10,437,812	$	11,569,003	$	11,446,783
Deferred loan fees included in total loans	$	5,349	$	4,986	$	6,937	$	6,715
Overdrawn demand deposits included in total loans	6,302		8,587		8,559		8,583

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 ~~2017~~2018 10-K.

Table of Contents

Loan Sales

The following table presents loan sales for the quarters ended March 31, ~~2018~~2019 and ~~2017.~~2018.

Loan Sales

(Dollar amounts in thousands)


	Quarters Ended March 31,				Quarters Ended March 31,
	2018		2017		2019		2018
Corporate loan sales
Proceeds from sales	$	8,321	$	15,368	$	3,198	$	8,321
Less book value of loans sold	8,123		15,117		3,116		8,123
Net gains on corporate loan sales⁽¹⁾	198		251		82		198
1-4 family mortgage loan sales
Proceeds from sales	$	65,185	$	55,761	$	58,783	$	65,185
Less book value of loans sold	63,758		54,598		57,455		63,758
Net gains on 1-4 family mortgage loan sales⁽²⁾	1,427		1,163		1,328		1,427
Total net gains on loan sales	$	1,625	$	1,414	$	1,410	$	1,625


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


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

The Company retained servicing responsibilities for a portion of the 1-4 family mortgage loans sold and collects servicing fees equal to a percentage of the outstanding principal balance. For additional disclosure related to the Company's obligations resulting from the sale of certain 1-4 family mortgage loans, see Note ~~10,~~12, "Commitments, Guarantees, and Contingent Liabilities."

Table of Contents

6. ACQUIRED AND COVERED LOANS

The significant accounting policies related to acquired and covered loans, which are classified as PCI and non-PCI, are presented in Note 1, "Summary of Significant Accounting Policies."

The following table presents the carrying amount of acquired and covered PCI and non-PCI loans as of March 31, ~~2018~~2019 and December 31, ~~2017.~~2018.

Acquired and Covered Loans⁽¹⁾

(Dollar amounts in thousands)


	As of March 31, 2018						As of December 31, 2017						As of March 31, 2019						As of December 31, 2018
	PCI		Non-PCI		Total		PCI		Non-PCI		Total		PCI		Non-PCI		Total		PCI		Non-PCI		Total
Acquired loans	$	122,071	$	1,361,055	$	1,483,126	$	130,694	$	1,512,664	$	1,643,358	$	96,455	$	1,086,779	$	1,183,234	$	108,049	$	1,247,492	$	1,355,541
Covered loans	6,635		9,863		16,498		6,759		11,789		18,548		5,652		4,488		10,140		5,819		4,869		10,688
Total acquired and covered loans	$	128,706	$	1,370,918	$	1,499,624	$	137,453	$	1,524,453	$	1,661,906	$	102,107	$	1,091,267	$	1,193,374	$	113,868	$	1,252,361	$	1,366,229


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

The outstanding balance of PCI loans was ~~$188.1~~$156.0 million and ~~$210.7~~$175.2 million as of March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively.

Acquired non-PCI loans that are renewed are no longer classified as acquired loans. These loans totaled ~~$404.2~~$483.1 million and ~~$366.0~~$458.0 million as of March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively.

In connection with the FDIC Agreements, the Company recorded an indemnification asset. ~~To maintain eligibility for the loss share reimbursement, the Company is required to follow certain servicing procedures as specified in the FDIC Agreements.~~ The ~~Company was in compliance with those requirements as of March 31, 2018 and December 31, 2017.~~

~~Table of Contents~~

~~Rollforwards of the~~ carrying value of the FDIC indemnification asset ~~for the quarters ended~~was $1.8 million and $2.1 million as of March 31, 2019 and December 31, 2018, ~~and 2017 are presented in the following table.~~

~~Changes in the FDIC Indemnification Asset~~

~~(Dollar amounts in thousands)~~

Quarters Ended
March 31,
2018 2017
Beginning balance $ 3,314
$ 4,522
Amortization (302 ) (302 )
Change in expected reimbursements from the FDIC for changes in expected credit
losses
146
(328 )
Net payments (from) to the FDIC (146 ) 328
Ending balance $ 3,012
$ 4,220
respectively.

Changes in the accretable yield for acquired and covered PCI loans were as follows.

Changes in Accretable Yield

(Dollar amounts in thousands)


	Quarters Ended March 31,						Quarters Ended March 31,
	2018			2017			2019			2018
Beginning balances	$	32,957		$	19,385		$	43,725		$	32,957
Additions	—			27,316
Accretion	(3,618		)	(3,955		)	(4,201		)	(3,618		)
Other⁽¹⁾	7,204			(1,497		)	11			7,204
Ending balance	$	36,543		$	41,249		$	39,535		$	36,543


⁽¹⁾	Increases represent a rise in the expected future cash flows to be collected over the remaining estimated life of the underlying portfolio, while decreases result from the resolution of certain loans occurring earlier than anticipated.

Total accretion on acquired and covered PCI and non-PCI loans for the quarters ended March 31, 2019 and 2018 ~~and 2017~~ was ~~$5.1~~$6.4 million and ~~$11.3~~$5.1 million, respectively.

Table of Contents

7. PAST DUE LOANS, ALLOWANCE FOR CREDIT LOSSES, IMPAIRED LOANS, AND TDRS

Past Due and Non-accrual Loans

The following table presents an aging analysis of the Company's past due loans as of March 31, ~~2018~~2019 and December 31, ~~2017.~~2018. The aging is determined without regard to accrual status. The table also presents non-performing loans, consisting of non-accrual loans (the majority of which are past due) and loans 90 days or more past due and still accruing interest, as of each balance sheet date.

Aging Analysis of Past Due Loans and Non-performing Loans by Class

(Dollar amounts in thousands)


	Aging Analysis (Accruing and Non-accrual)										Non-performing Loans				Aging Analysis (Accruing and Non-accrual)										Non-performing Loans
	Current⁽¹⁾		30-89 Days Past Due		90 Days or More Past Due		Total Past Due		Total Loans		Non- accrual⁽²⁾		90 Days or More Past Due, Still Accruing Interest		Current⁽¹⁾		30-89 Days Past Due		90 Days or More Past Due		Total Past Due		Total Loans		Non- accrual⁽²⁾		90 Days or More Past Due, Still Accruing Interest
As of March 31, 2018
As of March 31, 2019
Commercial and industrial	$	3,612,554	$	11,412	$	35,100	$	46,512	$	3,659,066	$	43,974	$	1,963	$	4,139,771	$	16,386	$	27,105	$	43,491	$	4,183,262	$	34,694	$	3,280
Agricultural	430,903		264		4,567		4,831		435,734		4,086		489		436,328		—		2,133		2,133		438,461		2,359		101
Commercial real estate:
Office, retail, and industrial	1,915,943		5,926		9,333		15,259		1,931,202		12,342		476		1,777,762		19,960		9,170		29,130		1,806,892		17,484		3,884
Multi-family	680,557		15,249		24		15,273		695,830		144		24		746,107		3,866		2,970		6,836		752,943		2,959		11
Construction	584,607		35		1,124		1,159		585,766		208		916		678,380		5,066		29		5,095		683,475		—		29
Other commercial real estate	1,356,320		4,083		2,835		6,918		1,363,238		4,088		64		1,304,499		4,227		1,152		5,379		1,309,878		2,971		251
Total commercial real estate	4,537,427		25,293		13,316		38,609		4,576,036		16,782		1,480		4,506,748		33,119		13,321		46,440		4,553,188		23,414		4,175
Total corporate loans	8,580,884		36,969		52,983		89,952		8,670,836		64,842		3,932		9,082,847		49,505		42,559		92,064		9,174,911		60,467		7,556
Home equity	875,789		3,399		2,346		5,745		881,534		5,780		44		855,502		4,116		2,450		6,566		862,068		5,836		39
1-4 family mortgages	794,212		2,608		2,082		4,690		798,902		4,393		132		1,082,513		1,574		2,177		3,751		1,086,264		3,902		—
Installment	322,797		2,180		525		2,705		325,502		—		525		441,556		3,353		851		4,204		445,760		—		851
Total consumer loans	1,992,798		8,187		4,953		13,140		2,005,938		10,173		701		2,379,571		9,043		5,478		14,521		2,394,092		9,738		890
Total loans	$	10,573,682	$	45,156	$	57,936	$	103,092	$	10,676,774	$	75,015	$	4,633	$	11,462,418	$	58,548	$	48,037	$	106,585	$	11,569,003	$	70,205	$	8,446
As of December 31, 2017
As of December 31, 2018
Commercial and industrial	$	3,490,783	$	34,620	$	4,511	$	39,131	$	3,529,914	$	40,580	$	1,830	$	4,085,164	$	8,832	$	26,297	$	35,129	$	4,120,293	$	33,507	$	422
Agricultural	430,221		280		385		665		430,886		219		177		428,357		940		1,631		2,571		430,928		1,564		101
Commercial real estate:
Office, retail, and industrial	1,970,564		3,156		6,100		9,256		1,979,820		11,560		345		1,803,059		8,209		9,649		17,858		1,820,917		6,510		4,081
Multi-family	672,098		3,117		248		3,365		675,463		377		20		759,402		1,487		3,296		4,783		764,185		3,107		189
Construction	539,043		198		579		777		539,820		209		371		645,774		3,419		144		3,563		649,337		144		—
Other commercial real estate	1,353,263		2,545		2,707		5,252		1,358,515		3,621		317		1,353,442		4,921		3,447		8,368		1,361,810		2,854		2,197
Total commercial real estate	4,534,968		9,016		9,634		18,650		4,553,618		15,767		1,053		4,561,677		18,036		16,536		34,572		4,596,249		12,615		6,467
Total corporate loans	8,455,972		43,916		14,530		58,446		8,514,418		56,566		3,060		9,075,198		27,808		44,464		72,272		9,147,470		47,686		6,990
Home equity	820,099		4,102		2,854		6,956		827,055		5,946		98		843,217		6,285		2,105		8,390		851,607		5,393		104
1-4 family mortgages	770,120		2,145		2,092		4,237		774,357		4,412		—		1,009,925		4,361		2,895		7,256		1,017,181		3,856		1,147
Installment	319,178		2,407		397		2,804		321,982		—		397		428,836		1,648		41		1,689		430,525		—		41
Total consumer loans	1,909,397		8,654		5,343		13,997		1,923,394		10,358		495		2,281,978		12,294		5,041		17,335		2,299,313		9,249		1,292
Total loans	$	10,365,369	$	52,570	$	19,873	$	72,443	$	10,437,812	$	66,924	$	3,555	$	11,357,176	$	40,102	$	49,505	$	89,607	$	11,446,783	$	56,935	$	8,282


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


⁽²⁾	Includes PCI loans of ~~$760,000~~$45,000 and ~~$763,000~~$58,000 as of March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively, which no longer have an accretable yield as estimates of expected future cash flows have decreased since the acquisition due to credit deterioration.

Table of Contents

Allowance for Credit Losses

The Company maintains an allowance for credit losses at a level deemed adequate by management to absorb estimated losses inherent in the existing loan portfolio. See Note 1, "Summary of Significant Accounting Policies," for the accounting policy for the allowance for credit losses. A rollforward of the allowance for credit losses by portfolio segment for the quarters ended March 31, ~~2018~~2019 and ~~2017~~2018 is presented in the table below.

Allowance for Credit Losses by Portfolio Segment

(Dollar amounts in thousands)


		Commercial, Industrial, and Agricultural			Office, Retail, and Industrial			Multi- family			Construction			Other Commercial Real Estate			Consumer			Reserve for Unfunded Commitments		Total Allowance for Credit Losses				Commercial, Industrial, and Agricultural			Office, Retail, and Industrial			Multi- family			Construction			Other Commercial Real Estate			Consumer			Reserve for Unfunded Commitments		Total Allowance for Credit Losses
Quarter ended March 31, 2019																									Quarter ended March 31, 2019
Beginning balance																										$	63,276		$	7,900		$	2,464		$	2,173		$	4,934		$	21,472		$	1,200	$	103,419
Charge-offs																										(6,451		)	(628		)	(340		)	(6		)	(210		)	(3,142		)	—		(10,777		)
Recoveries																										1,301			10			1			6			21			354			—		1,693
Net charge-offs																										(5,150		)	(618		)	(339		)	—			(189		)	(2,788		)	—		(9,084		)
Provision for loan losses and other																										6,559			397			91			(42		)	185			3,254			—		10,444
Ending balance																										$	64,685		$	7,679		$	2,216		$	2,131		$	4,930		$	21,938		$	1,200	$	104,779
Quarter ended March 31, 2018	Quarter ended March 31, 2018																								Quarter ended March 31, 2018
Beginning balance		$	55,791		$	10,996		$	2,534		$	3,481		$	6,381		$	16,546		$	1,000	$	96,729			$	55,791		$	10,996		$	2,534		$	3,481		$	6,381		$	16,546		$	1,000	$	96,729
Charge-offs		(14,670		)	(461		)	—			—			(69		)	(1,885		)	—		(17,085		)		(14,670		)	(461		)	—			—			(69		)	(1,885		)	—		(17,085		)
Recoveries		538			97			—			13			39			342			—		1,029				538			97			—			13			39			342			—		1,029
Net charge-offs		(14,132		)	(364		)	—			13			(30		)	(1,543		)	—		(16,056		)		(14,132		)	(364		)	—			13			(30		)	(1,543		)	—		(16,056		)
Provision for loan losses and other		15,541			(25		)	58			(1,522		)	(1,060		)	2,189			—		15,181				15,541			(25		)	58			(1,522		)	(1,060		)	2,189			—		15,181
Ending balance		$	57,200		$	10,607		$	2,592		$	1,972		$	5,291		$	17,192		$	1,000	$	95,854			$	57,200		$	10,607		$	2,592		$	1,972		$	5,291		$	17,192		$	1,000	$	95,854
Quarter ended March 31, 2017
Beginning balance		$	40,709		$	17,595		$	3,261		$	3,444		$	7,739		$	13,335		$	1,000	$	87,083
Charge-offs		(4,074		)	(127		)	—			(5		)	(408		)	(1,664		)	—		(6,278		)
Recoveries		1,666			975			28			227			101			443			—		3,440
Net charge-offs		(2,408		)	848			28			222			(307		)	(1,221		)	—		(2,838		)
Provision for loan losses and other		3,485			(742		)	(429		)	444			(510		)	2,670			—		4,918
Ending balance		$	41,786		$	17,701		$	2,860		$	4,110		$	6,922		$	14,784		$	1,000	$	89,163

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, ~~2018~~2019 and December 31, ~~2017.~~2018.

Loans and Related Allowance for Credit Losses by Portfolio Segment

(Dollar amounts in thousands)


	Loans								Allowance for Credit Losses								Loans								Allowance for Credit Losses
	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		PCI		Total		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		PCI		Total		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		PCI		Total		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		PCI		Total
As of March 31, 2018
As of March 31, 2019
Commercial, industrial, and agricultural	$	46,748	$	4,037,396	$	10,656	$	4,094,800	$	8,111	$	48,400	$	689	$	57,200	$	34,093	$	4,581,830	$	5,800	$	4,621,723	$	2,716	$	61,620	$	349	$	64,685
Commercial real estate:
Office, retail, and industrial	11,375		1,905,401		14,426		1,931,202		481		8,705		1,421		10,607		15,842		1,777,559		13,491		1,806,892		295		5,947		1,437		7,679
Multi-family	391		682,238		13,201		695,830		—		2,418		174		2,592		3,177		743,286		6,480		752,943		—		2,118		98		2,216
Construction	—		577,297		8,469		585,766		—		1,815		157		1,972		—		677,244		6,231		683,475		—		1,979		152		2,131
Other commercial real estate	2,223		1,300,548		60,467		1,363,238		—		4,320		971		5,291		1,531		1,257,566		50,781		1,309,878		—		4,186		744		4,930
Total commercial real estate	13,989		4,465,484		96,563		4,576,036		481		17,258		2,723		20,462		20,550		4,455,655		76,983		4,553,188		295		14,230		2,431		16,956
Total corporate loans	60,737		8,502,880		107,219		8,670,836		8,592		65,658		3,412		77,662		54,643		9,037,485		82,783		9,174,911		3,011		75,850		2,780		81,641
Consumer	—		1,984,451		21,487		2,005,938		—		15,926		1,266		17,192		—		2,374,768		19,324		2,394,092		—		20,794		1,144		21,938
Reserve for unfunded commitments	—		—		—		—		—		1,000		—		1,000		—		—		—		—		—		1,200		—		1,200
Total loans	$	60,737	$	10,487,331	$	128,706	$	10,676,774	$	8,592	$	82,584	$	4,678	$	95,854	$	54,643	$	11,412,253	$	102,107	$	11,569,003	$	3,011	$	97,844	$	3,924	$	104,779
As of December 31, 2017
As of December 31, 2018
Commercial, industrial, and agricultural	$	38,718	$	3,909,380	$	12,702	$	3,960,800	$	10,074	$	45,293	$	424	$	55,791	$	32,415	$	4,514,349	$	4,457	$	4,551,221	$	3,961	$	58,947	$	368	$	63,276
Commercial real estate:
Office, retail, and industrial	10,810		1,954,435		14,575		1,979,820		—		9,333		1,663		10,996		5,057		1,799,304		16,556		1,820,917		748		5,984		1,168		7,900
Multi-family	621		660,771		14,071		675,463		—		2,436		98		2,534		3,492		747,030		13,663		764,185		—		2,154		310		2,464
Construction	—		530,977		8,843		539,820		—		3,331		150		3,481		—		644,499		4,838		649,337		—		2,019		154		2,173
Other commercial real estate	1,468		1,291,723		65,324		1,358,515		—		5,415		966		6,381		1,545		1,305,444		54,821		1,361,810		—		4,180		754		4,934
Total commercial real estate	12,899		4,437,906		102,813		4,553,618		—		20,515		2,877		23,392		10,094		4,496,277		89,878		4,596,249		748		14,337		2,386		17,471
Total corporate loans	51,617		8,347,286		115,515		8,514,418		10,074		65,808		3,301		79,183		42,509		9,010,626		94,335		9,147,470		4,709		73,284		2,754		80,747
Consumer	—		1,901,456		21,938		1,923,394		—		15,533		1,013		16,546		—		2,279,780		19,533		2,299,313		—		20,094		1,378		21,472
Reserve for unfunded commitments	—		—		—		—		—		1,000		—		1,000		—		—		—		—		—		1,200		—		1,200
Total loans	$	51,617	$	10,248,742	$	137,453	$	10,437,812	$	10,074	$	82,341	$	4,314	$	96,729	$	42,509	$	11,290,406	$	113,868	$	11,446,783	$	4,709	$	94,578	$	4,132	$	103,419

Table of Contents

Loans Individually Evaluated for Impairment

The following table presents loans individually evaluated for impairment by class of loan as of March 31, ~~2018~~2019 and December 31, ~~2017.~~2018. PCI loans are excluded from this disclosure.

Impaired Loans Individually Evaluated by Class

(Dollar amounts in thousands)


	As of March 31, 2018								As of December 31, 2017								As of March 31, 2019								As of December 31, 2018
	Recorded Investment In								Recorded Investment In								Recorded Investment In								Recorded Investment In
	Loans with No Specific Reserve		Loans with a Specific Reserve		Unpaid Principal Balance		Specific Reserve		Loans with No Specific Reserve		Loans with a Specific Reserve		Unpaid Principal Balance		Specific Reserve		Loans with No Specific Reserve		Loans with a Specific Reserve		Unpaid Principal Balance		Specific Reserve		Loans with No Specific Reserve		Loans with a Specific Reserve		Unpaid Principal Balance		Specific Reserve
Commercial and industrial	$	7,147	$	35,731	$	68,806	$	7,310	$	4,234	$	34,484	$	53,192	$	10,074	$	12,033	$	19,945	$	52,148	$	2,716	$	7,550	$	23,349	$	49,102	$	3,960
Agricultural	—		3,870		4,672		801		—		—		—		—		2,115		—		4,554		—		1,318		198		3,997		1
Commercial real estate:
Office, retail, and industrial	7,538		3,837		12,333		481		7,154		3,656		14,246		—		11,983		3,859		17,389		295		1,861		3,196		6,141		748
Multi-family	391		—		391		—		621		—		621		—		3,177		—		3,513		—		3,492		—		3,492		—
Construction	—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Other commercial real estate	2,223		—		2,243		—		1,468		—		1,566		—		1,531		—		1,620		—		1,545		—		1,612		—
Total commercial real estate	10,152		3,837		14,967		481		9,243		3,656		16,433		—		16,691		3,859		22,522		295		6,898		3,196		11,245		748
Total impaired loans individually evaluated for impairment	$	17,299	$	43,438	$	88,445	$	8,592	$	13,477	$	38,140	$	69,625	$	10,074	$	30,839	$	23,804	$	79,224	$	3,011	$	15,766	$	26,743	$	64,344	$	4,709

The following table presents the average recorded investment and interest income recognized on impaired loans by class for the quarters ended March 31, ~~2018~~2019 and ~~2017.~~2018. PCI loans are excluded from this disclosure.

Average Recorded Investment and Interest Income Recognized on Impaired Loans by Class

(Dollar amounts in thousands)


	Quarters Ended March 31,								Quarters Ended March 31,
	2018				2017				2019				2018
	Average Recorded Investment		Interest Income Recognized⁽¹⁾		Average Recorded Investment		Interest Income Recognized⁽¹⁾		Average Recorded Investment		Interest Income Recognized⁽¹⁾		Average Recorded Investment		Interest Income Recognized⁽¹⁾
Commercial and industrial	$	40,798	$	22	$	20,849	$	214	$	31,439	$	16	$	40,798	$	22
Agricultural	1,935		—		557		—		1,816		—		1,935		—
Commercial real estate:
Office, retail, and industrial	11,093		112		14,865		93		10,450		3		11,093		112
Multi-family	506		7		397		28		3,335		—		506		7
Construction	—		—		17		136		—		—		—		—
Other commercial real estate	1,846		52		1,890		12		1,538		16		1,846		52
Total commercial real estate	13,445		171		17,169		269		15,323		19		13,445		171
Total impaired loans	$	56,178	$	193	$	38,575	$	483	$	48,578	$	35	$	56,178	$	193


⁽¹⁾	Recorded using the cash basis of accounting.

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 periodically. The following tables present credit quality indicators by class for corporate and consumer loans, as of March 31, ~~2018~~2019 and December 31, ~~2017.~~2018.

Corporate Credit Quality Indicators by Class

(Dollar amounts in thousands)


	Pass		Special Mention⁽¹⁾⁽⁴⁾		Substandard⁽²⁾⁽⁴⁾		Non-accrual⁽³⁾		Total		Pass		Special Mention⁽¹⁾⁽⁴⁾		Substandard⁽²⁾⁽⁴⁾		Non-accrual⁽³⁾		Total
As of March 31, 2018
As of March 31, 2019
Commercial and industrial	$	3,505,129	$	95,259	$	14,704	$	43,974	$	3,659,066	$	3,985,650	$	57,746	$	105,172	$	34,694	$	4,183,262
Agricultural	417,644		7,756		6,248		4,086		435,734		410,422		9,119		16,561		2,359		438,461
Commercial real estate:
Office, retail, and industrial	1,856,832		26,642		35,386		12,342		1,931,202		1,681,471		62,937		45,000		17,484		1,806,892
Multi-family	682,926		10,961		1,799		144		695,830		734,064		9,409		6,511		2,959		752,943
Construction	568,148		9,941		7,469		208		585,766		657,979		16,088		9,408		—		683,475
Other commercial real estate	1,310,712		31,431		17,007		4,088		1,363,238		1,259,991		14,175		32,741		2,971		1,309,878
Total commercial real estate	4,418,618		78,975		61,661		16,782		4,576,036		4,333,505		102,609		93,660		23,414		4,553,188
Total corporate loans	$	8,341,391	$	181,990	$	82,613	$	64,842	$	8,670,836	$	8,729,577	$	169,474	$	215,393	$	60,467	$	9,174,911
As of December 31, 2017
As of December 31, 2018
Commercial and industrial	$	3,388,133	$	70,863	$	30,338	$	40,580	$	3,529,914	$	3,952,066	$	74,878	$	59,842	$	33,507	$	4,120,293
Agricultural	413,946		10,989		5,732		219		430,886		407,542		10,070		11,752		1,564		430,928
Commercial real estate:
Office, retail, and industrial	1,903,737		25,546		38,977		11,560		1,979,820		1,735,426		35,853		43,128		6,510		1,820,917
Multi-family	665,496		7,395		2,195		377		675,463		745,131		9,273		6,674		3,107		764,185
Construction	521,911		10,184		7,516		209		539,820		624,446		16,370		8,377		144		649,337
Other commercial real estate	1,304,337		29,624		20,933		3,621		1,358,515		1,294,128		47,736		17,092		2,854		1,361,810
Total commercial real estate	4,395,481		72,749		69,621		15,767		4,553,618		4,399,131		109,232		75,271		12,615		4,596,249
Total corporate loans	$	8,197,560	$	154,601	$	105,691	$	56,566	$	8,514,418	$	8,758,739	$	194,180	$	146,865	$	47,686	$	9,147,470


⁽¹⁾	Loans categorized as special mention exhibit potential weaknesses that require the close attention of management since these potential weaknesses may result in the deterioration of repayment prospects in the future.


⁽²⁾	Loans categorized as substandard exhibit well-defined weaknesses that may jeopardize the liquidation of the debt. These loans continue to accrue interest because they are well-secured and collection of principal and interest is expected within a reasonable time.


⁽³⁾	Loans categorized as non-accrual exhibit well-defined weaknesses that may jeopardize the liquidation of the debt or result in a loss if the deficiencies are not corrected.


⁽⁴⁾	Total special mention and substandard loans includes accruing TDRs of ~~$651,000~~$624,000 as of March 31, ~~2018~~2019 and $657,000 as of December 31, ~~2017.~~2018.

Consumer Credit Quality Indicators by Class

(Dollar amounts in thousands)


	Performing		Non-accrual		Total		Performing		Non-accrual		Total
As of March 31, 2018
As of March 31, 2019
Home equity	$	875,754	$	5,780	$	881,534	$	856,232	$	5,836	$	862,068
1-4 family mortgages	794,509		4,393		798,902		1,082,362		3,902		1,086,264
Installment	325,502		—		325,502		445,760		—		445,760
Total consumer loans	$	1,995,765	$	10,173	$	2,005,938	$	2,384,354	$	9,738	$	2,394,092
As of December 31, 2017
As of December 31, 2018
Home equity	$	821,109	$	5,946	$	827,055	$	846,214	$	5,393	$	851,607
1-4 family mortgages	769,945		4,412		774,357		1,013,325		3,856		1,017,181
Installment	321,982		—		321,982		430,525		—		430,525
Total consumer loans	$	1,913,036	$	10,358	$	1,923,394	$	2,290,064	$	9,249	$	2,299,313

Table of Contents

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, ~~2018~~2019 and December 31, ~~2017.~~2018. 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, 2018						As of December 31, 2017						As of March 31, 2019						As of December 31, 2018
	Accruing		Non-accrual⁽¹⁾		Total		Accruing		Non-accrual⁽¹⁾		Total		Accruing		Non-accrual⁽¹⁾		Total		Accruing		Non-accrual⁽¹⁾		Total
Commercial and industrial	$	260	$	16,830	$	17,090	$	264	$	18,959	$	19,223	$	241	$	8,829	$	9,070	$	246	$	5,994	$	6,240
Agricultural	—		—		—		—		—		—		—		—		—		—		—		—
Commercial real estate:
Office, retail, and industrial	—		2,336		2,336		—		4,236		4,236		—		—		—		—		—		—
Multi-family	570		144		714		574		149		723		552		—		552		557		—		557
Construction	—		—		—		—		—		—		—		—		—		—		—		—
Other commercial real estate	189		—		189		192		—		192		179		—		179		181		—		181
Total commercial real estate	759		2,480		3,239		766		4,385		5,151		731		—		731		738		—		738
Total corporate loans	1,019		19,310		20,329		1,030		23,344		24,374		972		8,829		9,801		984		5,994		6,978
Home equity	85		724		809		86		738		824		112		266		378		113		327		440
1-4 family mortgages	674		432		1,106		680		451		1,131		760		280		1,040		769		291		1,060
Installment	—		—		—		—		—		—		—		—		—		—		—		—
Total consumer loans	759		1,156		1,915		766		1,189		1,955		872		546		1,418		882		618		1,500
Total loans	$	1,778	$	20,466	$	22,244	$	1,796	$	24,533	$	26,329	$	1,844	$	9,375	$	11,219	$	1,866	$	6,612	$	8,478


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

TDRs are included in the calculation of the allowance for credit losses in the same manner as impaired loans. As of March 31, 2019 there were $173,000 of specific reserves related to TDRs. There were ~~$2.4 million and $2.0 million~~no specific reserves related to TDRs as of ~~March 31, 2018 and~~ December 31, ~~2017, respectively.~~2018.

There were no material ~~restructures~~restructurings during the quarters ended March 31, ~~2018~~2019 and ~~2017.~~2018.

Accruing TDRs that do not perform in accordance with their modified terms are transferred to non-accrual. There were no material TDRs that defaulted within twelve months of the restructure date during the quarters ended March 31, ~~2018~~2019 and ~~2017.~~2018.

Table of Contents

A rollforward of the carrying value of TDRs for the quarters ended March 31, ~~2018~~2019 and ~~2017~~2018 is presented in the following table.

TDR Rollforward

(Dollar amounts in thousands)

Quarters Ended
March 31,
2018 2017
Accruing
Beginning balance $ 1,796
$ 2,291
Additions —
922
Net payments (18 ) (24 )
Net transfers from (to) non-accrual —
(1,077 )
Ending balance 1,778
2,112
Non-accrual
Beginning balance 24,533
6,297
Additions 355
—
Net payments (3,113 ) (4,150 )
Charge-offs (1,309 ) (112 )
Net transfers from accruing —
1,077
Ending balance 20,466
3,112
Total TDRs $ 22,244
$ 5,224

For TDRs to be removed from TDR status in the calendar year after the restructuring, the loans must (i) have an interest rate and terms that reflect market conditions at the time of restructuring, and (ii) be in compliance with the modified terms. Loans that were not restructured at market rates and terms, that are not in compliance with the modified terms, or for which there is a concern about the future ability of the borrower to meet its obligations under the modified terms, continue to be separately reported as restructured until paid in full or charged-off.



	Quarters Ended March 31,
	2019			2018
Accruing
Beginning balance	$	1,866		$	1,796
Additions	12			—
Net payments	(34		)	(18		)
Net transfers to non-accrual	—			—
Ending balance	1,844			1,778
Non-accrual
Beginning balance	6,612			24,533
Additions	—			355
Net advances (payments)	2,921			(3,113		)
Charge-offs	(158		)	(1,309		)
Net transfers from accruing	—			—
Ending balance	9,375			20,466
Total TDRs	$	11,219		$	22,244

There were ~~no material~~$631,000 and $3.8 million of commitments to lend additional funds to borrowers with TDRs as of March 31, ~~2018~~2019 and December 31, ~~2017.~~2018, respectively.

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, 2033. As of March 31, 2019, the weighted-average remaining lease term on these leases was 11.26 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 rents or subleases certain real estate to third-parties. The following summary reflects the future minimum payments by year required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year and a reconciliation of those payments to the Company's lease liability as of March 31, 2019.

Lease Liability

(Dollar amounts in thousands)



	As of March 31, 2019
Year Ending December 31,
2019	$	11,917
2020	17,115
2021	16,980
2022	16,982
2023	17,130
2024 and thereafter	114,384
Total minimum lease payments	194,508
Discount⁽¹⁾	(33,935		)
Lease liability⁽²⁾	160,573


⁽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 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 3.34% as of March 31, 2019.

As of March 31, 2019, right-of-use assets of $140.7 million associated with lease liabilities were included in accrued interest receivable and other assets in the Consolidated Statements of Financial Condition.

The following table presents net operating lease expense for the quarters ended March 31, 2019 and 2018.

Net Operating Lease Expense

(Dollar amounts in thousands)



	Quarters Ended March 31,
	2019			2018
Lease expense charged to operations	$	4,060		$	4,997
Accretion of operating lease intangible ⁽¹⁾	—			(295		)
Accretion of deferred gain on sale-leaseback transaction ⁽¹⁾	—			(1,463		)
Rental income from premises leased to others ⁽¹⁾	(157		)	(154		)
Net operating lease expense	$	3,903		$	3,085


⁽¹⁾	Included as reductions to net occupancy and equipment expense in the Condensed Consolidated Statements of Income.

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

Table of Contents

lease guidance on January 1, 2019, the remaining after tax gain of $47.3 million was recognized as a cumulative-effect adjustment to equity in the Consolidated Statements of Financial Condition. For additional detail regarding the new lease guidance see Note 2 "Recent Accounting Pronouncements."

9. MATERIAL TRANSACTIONS AFFECTING STOCKHOLDERS' EQUITY

On March 19, 2019, the Company announced a new stock repurchase program that authorizes the Company to repurchase up to $180 million of its common stock. Stock repurchases under this program may be made from time to time on the open market or in privately negotiated transactions, at the discretion of the Company. The program will be in effect for a one-year period, with repurchases made at prices to be determined by the Company.

10. EARNINGS PER COMMON SHARE

The table below displays the calculation of basic and diluted earnings per common share ("EPS").

Basic and Diluted EPS

(Amounts in thousands, except per share data)


	Quarters Ended March 31,						Quarters Ended March 31,
	2018			2017			2019			2018
Net income	$	33,510		$	22,855		$	46,058		$	33,510
Net income applicable to non-vested restricted shares	(311		)	(234		)	(403		)	(311		)
Net income applicable to common shares	$	33,199		$	22,621		$	45,655		$	33,199
Weighted-average common shares outstanding:
Weighted-average common shares outstanding (basic)	101,922			100,411			105,770			101,922
Dilutive effect of common stock equivalents	16			21			—			16
Weighted-average diluted common shares outstanding	101,938			100,432			105,770			101,938
Basic EPS	$	0.33		$	0.23		$	0.43		$	0.33
Diluted EPS	$	0.33		$	0.23		$	0.43		$	0.33
Anti-dilutive shares not included in the computation of diluted EPS⁽¹⁾	110			343			—			110


⁽¹⁾	This amount represents outstanding stock options for which the exercise price is greater than the average market price of the Company's common stock. The final outstanding stock options were exercised during the first quarter of 2018.

9.11. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

In the ordinary course of business, the Company enters into derivative transactions as part of its overall interest rate risk management strategy. The significant accounting policies related to derivative instruments and hedging activities are presented in Note 1, "Summary of Significant Accounting Policies."

~~Fair Value Hedges~~

The Company hedges the fair value of fixed rate commercial real estate loans using interest rate swaps through which the Company pays fixed amounts and receives variable amounts. These derivative contracts are designated as fair value hedges.

~~Fair Value Hedges~~

~~(Dollar amounts in thousands)~~

As of
March 31, 2018 December 31, 2017
Gross notional amount outstanding $ 5,333
$ 5,458
Derivative liability fair value in other liabilities (61 ) (101 )
Weighted-average interest rate received 3.69 % 3.38 %
Weighted-average interest rate paid 5.96 % 5.96 %
Weighted-average maturity (in years) 0.60
0.84
Fair value of derivative⁽¹⁾
$ 70
$ 110


⁽¹⁾	~~This amount represents the fair value if credit risk related contingent features were triggered.~~

~~Changes in the fair value of fair value hedges are recognized in other noninterest income in the Condensed Consolidated Statements of Income.~~

Cash Flow Hedges

As of March 31, ~~2018,~~2019, the Company hedged $1.1 billion of certain corporate variable rate loans using interest rate swaps through which the Company receives fixed amounts and pays variable amounts. The Company also hedged ~~$980.0 million~~$1.1 billion of borrowed funds using forward starting interest rate swaps through which the Company receives variable amounts and pays fixed amounts. These transactions allow the Company to add stability to net interest income and manage its exposure to interest rate movements.

~~Table of Contents~~

Forward starting interest rate swaps totaling ~~$510.0~~$740.0 million began on various dates between June of 2015 and ~~March~~May of 2018, and mature between June of 2019 and ~~March~~December of ~~2020.~~2023. The remaining forward starting interest rate swaps totaling ~~$470.0~~$400.0 million begin at various dates between ~~May~~April of ~~2018~~2019 and February of ~~2020~~2021 and mature between ~~May~~December of ~~2020~~2021 and ~~April~~February of ~~2022.~~2023. The weighted-average fixed interest rate to be paid on these interest rate swaps that have not yet begun was ~~1.89%~~2.53% as of March 31, ~~2018.~~2019. These derivative contracts are designated as cash flow hedges.

Table of Contents

Cash Flow Hedges

(Dollar amounts in thousands)


	As of						As of
	March 31, 2018			December 31, 2017			March 31, 2019			December 31, 2018
Gross notional amount outstanding	$	2,060,000		$	1,960,000		$	2,280,000		$	2,280,000
Derivative asset fair value in other assets⁽¹⁾	7,291			3,989			3,188			6,889
Derivative liability fair value in other liabilities⁽¹⁾	(15,729		)	(10,219		)	(7,239		)	(11,328		)
Weighted-average interest rate received	1.78		%	1.58		%	2.15		%	2.12		%
Weighted-average interest rate paid	1.85		%	1.61		%	2.26		%	2.20		%
Weighted-average maturity (in years)	2.17			2.25			1.27			1.53


⁽¹⁾	Certain cash flow hedges are transacted through a clearinghouse ("centrally cleared") and their change in fair value is settled by the counterparties to the transaction, which results in no fair value.

Changes in the fair value of cash flow hedges are recorded in accumulated other comprehensive 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, ~~2018,~~2019, the Company estimates that ~~$1.3~~$1.5 million will be reclassified from accumulated other comprehensive loss as a decrease to interest income over the next twelve months.

Other Derivative Instruments

The Company also enters into derivative transactions through capital market products with its commercial customers and simultaneously enters into an offsetting interest rate derivative transaction with third-parties. This transaction allows the Company's customers to effectively convert a variable rate loan into a fixed rate loan. Due to the offsetting nature of these transactions, the Company does not apply hedge accounting treatment. The Company's credit exposure on these derivative transactions results primarily from counterparty credit risk. The credit valuation adjustment ("CVA") is a fair value adjustment to the derivative to account for this risk. As of March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, 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 oftotaled $1.3 million and $1.6 million ~~and $1.4 million were recorded in noninterest income~~ for the quarters ended March 31, ~~2018~~2019 and ~~2017,~~2018, respectively.

Other Derivative Instruments

(Dollar amounts in thousands)


	As of						As of
	March 31, 2018			December 31, 2017			March 31, 2019			December 31, 2018
Gross notional amount outstanding	$	2,755,248		$	2,665,358		$	3,098,820		$	3,085,226
Derivative asset fair value in other assets⁽¹⁾	21,019			17,079			33,598			25,168
Derivative liability fair value in other liabilities⁽¹⁾	(22,948		)	(14,930		)	(17,139		)	(17,533		)
Fair value of derivative⁽²⁾	22,682			15,059			17,663			18,013


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


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

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, ~~2018~~2019 and December 31, ~~2017.~~2018. The Company does not enter into derivative transactions for purely speculative purposes.

2930

Table of Contents

The following table presents the impact of derivative instruments on comprehensive income and the reclassification of gains (losses) from accumulated other comprehensive loss to net interest income for the quarters ended March 31, ~~2018~~2019 and ~~2017.~~2018.

Cash Flow Hedge Accounting on AOCI

(Dollar amounts in thousands)


	Quarters Ended March 31,						Quarters Ended March 31,
	2018			2017			2019			2018
Gains (losses) recognized in other comprehensive income
Interest rate swaps in interest income	$	6,996		$	1,811		$	3,353		$	6,996
Interest rate swaps in interest expense	(7,183		)	(302		)	(4,180		)	(7,183		)
Reclassification of gains (losses) included in net income
Interest rate swaps in interest income	$	271		$	1,856		$	1,393		$	271
Interest rate swaps in interest expense	(606		)	(1,145		)	(2,024		)	(606		)

The following table presents the impact of derivative instruments on net interest income for the quarters ended March 31, ~~2018~~2019 and ~~2017.~~2018.

Hedge Income

(Dollar amounts in thousands)


	Quarters Ended March 31,						Quarters Ended March 31,
	2018			2017			2019		2018
Fair Value Hedges
Interest rate swaps in interest income	$	(41	)	$	(34	)
Cash Flow Hedges
Interest rate swaps in interest income	271			1,856			1,393		271
Interest rate swaps in interest expense	(606		)	(1,145		)	(2,024	)	(606	)
Total cash flow hedges	(335		)	711			(631	)	(335	)
Total net gains (losses) on hedges	$	(376	)	$	677

Credit Risk

Derivative instruments are inherently subject to credit risk, which represents the Company's risk of loss when the counterparty to a derivative contract fails to perform according to the terms of the agreement. Credit risk is managed by limiting and collateralizing the aggregate amount of net unrealized losses by transaction, monitoring the size and the maturity structure of the derivatives, and applying uniform credit standards. Company policy establishes limits on credit exposure to any single counterparty. In addition, the Company established bilateral collateral agreements with derivative counterparties that provide for exchanges of marketable securities or cash to collateralize either party's net losses above a stated minimum threshold. As of March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, these collateral agreements covered 100% of the fair value of the Company's outstanding fair value hedges. Derivative assets and liabilities are presented gross, rather than net, of pledged collateral amounts.

3031

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, ~~2018~~2019 and December 31, ~~2017.~~2018.

Fair Value of Offsetting Derivatives

(Dollar amounts in thousands)


	As of March 31, 2018						As of December 31, 2017						As of March 31, 2019						As of December 31, 2018
	Assets			Liabilities			Assets			Liabilities			Assets			Liabilities			Assets			Liabilities
Gross amounts recognized	$	28,310		$	38,738		$	21,068		$	25,250		$	36,786		$	24,378		$	32,057		$	28,861
Less: amounts offset in the Consolidated Statements of Financial Condition	—			—			—			—			—			—			—			—
Net amount presented in the Consolidated Statements of Financial Condition⁽¹⁾	28,310			38,738			21,068			25,250			36,786			24,378			32,057			28,861
Gross amounts not offset in the Consolidated Statements of Financial Condition:
Offsetting derivative positions	(18,362		)	(18,362		)	(16,880		)	(16,880		)	(8,819		)	(8,819		)	(11,678		)	(11,678		)
Cash collateral pledged	—			(20,376		)	—			(8,370		)	(1,230		)	(4,860		)	(9,060		)	(3,506		)
Net credit exposure	$	9,948		$	—		$	4,188		$	—		$	26,737		$	10,699		$	11,319		$	13,677


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

As of March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, the Company's derivative instruments generally contained provisions that require the Company's debt to remain above a certain credit rating by each of the major credit rating agencies or that the Company maintain certain capital levels. If the Company's debt were to fall below that credit rating or the Company's capital were to fall below the required levels, it would be in violation of those provisions, and the counterparties to the derivative instruments could terminate the swap transaction and demand cash settlement of the derivative instrument in an amount equal to the derivative liability fair value. As of March 31, ~~2018~~2019 and December 31, ~~2017~~2018 the Company was in compliance with these provisions.

3132

Table of Contents

~~10.~~12. COMMITMENTS, GUARANTEES, AND CONTINGENT LIABILITIES

Credit Commitments and Guarantees

In the normal course of business, the Company enters into a variety of financial instruments with off-balance sheet risk to meet the financing needs of its customers and to conduct lending activities, including commitments to extend credit and standby and commercial letters of credit. These instruments involve elements of credit and interest rate risk in excess of the amount recognized in the Consolidated Statements of Financial Condition.

Contractual or Notional Amounts of Financial Instruments

(Dollar amounts in thousands)


	As of				As of
	March 31, 2018		December 31, 2017		March 31, 2019		December 31, 2018
Commitments to extend credit:
Commercial, industrial, and agricultural	$	1,712,750	$	1,729,426	$	1,686,990	$	1,729,286
Commercial real estate	356,393		377,551		302,263		296,882
Home equity	529,808		514,973		578,969		570,553
Other commitments⁽¹⁾	244,206		244,222		244,222		244,917
Total commitments to extend credit	$	2,843,157	$	2,866,172	$	2,812,444	$	2,841,638

Letters of credit	$	117,926	$	128,801	$	120,028	$	112,728


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

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

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

Letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third-party. Letters of credit generally are contingent on the failure of the customer to perform according to the terms of the contract with the third-party and are often issued in favor of a municipality where construction is taking place to ensure the borrower adequately completes the construction. Commercial letters of credit are issued to facilitate transactions between a customer and a third-party based on agreed upon terms.

The maximum potential future payments guaranteed by the Company under letters of credit arrangements are equal to the contractual amount of the commitment. If a commitment is funded, the Company may seek recourse through the liquidation of the underlying collateral, including real estate, production plants and property, marketable securities, or receipt of cash.

As a result of the sale of certain 1-4 family mortgage loans, the Company is contractually obligated to repurchase early payment default loans or loans that do not meet underwriting requirements at recorded value. In accordance with the sales agreements, there is no limitation to the maximum potential future payments or expiration of the Company's recourse obligation. There were no material loan repurchases during the quarters ended March 31, ~~2018~~2019 and ~~2017.~~2018.

Legal Proceedings

In the ordinary course of business, there were certain legal proceedings pending against the Company and its subsidiaries at March 31, ~~2018.~~2019. While the outcome of any legal proceeding is inherently uncertain, based on information currently available, the Company's management does not expect that any liabilities arising from pending legal matters will have a material adverse effect on the Company's business, financial position, results of operations, or cash flows.

3233

Table of Contents

~~11.~~13. FAIR VALUE

Fair value represents the amount expected to be received to sell an asset or paid to transfer a liability in its principal or most advantageous market in an orderly transaction between market participants at the measurement date. In accordance with fair value accounting guidance, the Company measures, records, and reports various types of assets and liabilities at fair value on either a recurring or non-recurring basis in the Consolidated Statements of Financial Condition. Those assets and liabilities are presented below in the sections titled "Assets and Liabilities Required to be Measured at Fair Value on a Recurring Basis" and "Assets and Liabilities Required to be Measured at Fair Value on a Non-Recurring Basis."

Other assets and liabilities are not required to be measured at fair value in the Consolidated Statements of Financial Condition, but must be disclosed at fair value. See the "Fair Value Measurements of Other Financial Instruments" section of this note. Any aggregation of the estimated fair values presented in this note does not represent the value of the Company.

Depending on the nature of the asset or liability, the Company uses various valuation methodologies and assumptions to estimate fair value. GAAP provides a three-tiered fair value hierarchy based on the inputs used to measure fair value. The hierarchy is defined as follows:

Level 1 -– Quoted prices in active markets for identical assets or liabilities.

Level 2 -– Observable inputs other than level 1 prices, such as quoted prices for similar instruments, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

Level 3 -– Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. These inputs require significant management judgment or estimation, some of which use model-based techniques and may be internally developed.

Assets and liabilities are assigned to a level within the fair value hierarchy based on the lowest level of significant input used to measure fair value. Assets and liabilities may change levels within the fair value hierarchy due to market conditions or other circumstances. Those transfers are recognized on the date of the event that prompted the transfer. There were no transfers of assets or liabilities required to be measured at fair value on a recurring basis between levels of the fair value hierarchy during the periods presented.

3334

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, 2018						As of December 31, 2017						As of March 31, 2019						As of December 31, 2018
	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3		Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Assets
Trading securities:
Money market funds	$	—	$	—	$	—	$	1,685	$	—	$	—
Mutual funds	—		—		—		18,762		—		—
Total trading securities⁽¹⁾	—		—		—		20,447		—		—
Equity securities⁽¹⁾	21,322		7,191		—		—		—		—
Securities available-for-sale⁽¹⁾
Equity securities													22,187		11,117		—		19,658		11,148		—
Securities available-for-sale
U.S. treasury securities	50,191		—		—		46,345		—		—		40,892		—		—		37,767		—		—
U.S. agency securities	—		159,538		—		—		156,847		—		—		128,321		—		—		142,563		—
CMOs	—		1,181,735		—		—		1,095,186		—		—		1,357,030		—		—		1,315,209		—
MBSs	—		423,362		—		—		369,543		—		—		487,026		—		—		466,934		—
Municipal securities	—		213,984		—		—		208,991		—		—		233,476		—		—		227,187		—
Corporate debt securities	—		12,140		—		—		—		—		—		103,450		—		—		82,349		—
Equity securities	—		—		—		—		7,297		—
Total securities available-for-sale	50,191		1,990,759		—		46,345		1,837,864		—		40,892		2,309,303		—		37,767		2,234,242		—
Mortgage servicing rights ("MSRs")⁽²⁾	—		—		6,468		—		—		5,894
Derivative assets⁽²⁾	—		28,310		—		—		21,068		—
Mortgage servicing rights ("MSRs")⁽¹⁾													—		—		6,228		—		—		6,730
Derivative assets⁽¹⁾													—		36,786		—		—		32,057		—
Liabilities
Derivative liabilities⁽³⁾	$	—	$	38,738	$	—	$	—	$	25,250	$	—
Derivative liabilities⁽²⁾													$	—	$	24,378	$	—	$	—	$	28,861	$	—


⁽¹⁾	As a result of recently adopted accounting guidance, equity securities are no longer presented within trading securities or securities available-for-sale for the prior period and are now presented within equity securities for the current period. For further discussion of this guidance, see Note 2 of "Notes to the Consolidated Financial Statements" in Item 1 of this Form 10-Q.


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


⁽³⁾⁽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 community development investments ~~are~~is based on quoted prices in active markets or market prices for similar securities obtained from external pricing services or dealer market participants and ~~are~~is classified in level 2 of the fair value hierarchy. The fair value of the money market and mutual funds is based on quoted market prices in active exchange markets and is classified in level 1 of the fair value hierarchy.

Securities Available-for-Sale

The Company's securities available-for-sale are primarily fixed income instruments that are not quoted on an exchange, but may be traded in active markets. The fair values for these securities are based on quoted prices in active markets or market prices for similar securities obtained from external pricing services or dealer market participants and are classified in level 2 of the fair value hierarchy. The fair value of U.S. treasury securities is based on quoted market prices in active exchange markets and is classified in level 1 of the fair value hierarchy. Quarterly, the Company evaluates the methodologies used by its external pricing services to estimate the fair value of these securities to determine whether the valuations represent an exit price in the Company's principal markets.

3435

Table of Contents

MSRs

The Company services loans for others totaling ~~$604.2~~$634.5 million and $627.3 million as of March 31, ~~2018~~2019 and ~~$607.0 million as of~~ December 31, ~~2017.~~2018, 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, ~~2018~~2019 and December 31, ~~2017.~~2018.

Significant Unobservable Inputs Used in the Valuation of MSRs


	As of								As of
	March 31, 2018				December 31, 2017				March 31, 2019				December 31, 2018
Prepayment speed	6.7	%	-	13.1%	4.2	%	-	13.1%	6.9	%	-	14.3%	6.5	%	-	13.5%
Maturity (months)	5		-	102	6		-	92	19		-	97	20		-	104
Discount rate	9.5	%	-	12.0%	9.5	%	-	12.0%	9.5	%	-	12.0%	9.5	%	-	12.0%

The impact of changes in these key inputs could result in a significantly higher or lower fair value measurement for MSRs. Significant increases in expected prepayment speeds and discount rates have negative impacts on the valuation. Higher maturity assumptions have a favorable effect on the estimated fair value.

A rollforward of the carrying value of MSRs for the quarters ended March 31, ~~2018~~2019 and ~~2017~~2018 is presented in the following table.

Carrying Value of MSRs

(Dollar amounts in thousands)


	Quarters Ended March 31,						Quarters Ended March 31,
	2018			2017			2019			2018
Beginning balance	$	5,894		$	6,120		$	6,730		$	5,894
New MSRs	176			156			253			176
Total losses (gains) included in earnings⁽¹⁾:
Total gains (losses) included in earnings⁽¹⁾:
Changes in valuation inputs and assumptions	560			172			(600		)	560
Other changes in fair value⁽²⁾	(162		)	(203		)	(155		)	(162		)
Ending balance(3)	$	6,468		$	6,245		$	6,228		$	6,468
Contractual servicing fees earned⁽¹⁾	$	378		$	395		$	381		$	378


⁽¹⁾	Included in mortgage banking income in the Condensed Consolidated Statements of Income and related to assets held as of March 31, ~~2018~~2019 and ~~2017.~~2018.


⁽²⁾	Primarily represents changes in expected future cash flows due to payoffs and paydowns.


⁽³⁾	Included in other assets in the Consolidated Statements of Financial Condition.

Derivative Assets and Derivative Liabilities

The Company enters into interest rate swaps and derivative transactions with commercial customers. These derivative transactions are executed in the dealer market, and pricing is based on market quotes obtained from the counterparties. The market quotes were developed using market observable inputs, which primarily include LIBOR. Therefore, derivatives are classified in level 2 of the fair value hierarchy. For its derivative assets and liabilities, the Company also considers non-performance risk, including the likelihood of default by itself and its counterparties, when evaluating whether the market quotes from the counterparty are representative of an exit price.

3536

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, 2018						As of December 31, 2017						As of March 31, 2019						As of December 31, 2018
	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3		Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Collateral-dependent impaired loans⁽¹⁾	$	—	$	—	$	35,715	$	—	$	—	$	33,240	$	—	$	—	$	22,349	$	—	$	—	$	24,565
OREO⁽²⁾	—		—		4,792		—		��		12,340		—		—		1,760		—		—		6,012
Loans held-for-sale⁽³⁾	—		—		5,970		—		—		21,098		—		—		8,918		—		—		3,478
Assets held-for-sale⁽⁴⁾	—		—		3,383		—		—		2,208		—		—		5,225		—		—		3,722


⁽¹⁾	Includes impaired loans with charge-offs and impaired loans with a specific reserve during the periods presented.


⁽²⁾	Includes OREO with fair value adjustments subsequent to initial transfer that occurred during the periods presented.


⁽³⁾	Included in other assets in the Consolidated Statements of Financial Condition.


⁽⁴⁾	Included in premises, furniture, and equipment in the Consolidated Statements of Financial Condition.

Collateral-Dependent Impaired Loans

Certain collateral-dependent impaired loans are subject to fair value adjustments to reflect the difference between the carrying value of the loan and the value of the underlying collateral. The fair values of collateral-dependent impaired loans are primarily determined by current appraised values of the underlying collateral. Based on the age and/or type, appraisals may be adjusted in the range of 0% to 15%. In certain cases, an internal valuation may be used when the underlying collateral is located in areas where comparable sales data is limited or unavailable. Accordingly, collateral-dependent impaired loans are classified in level 3 of the fair value hierarchy.

Collateral-dependent impaired loans for which the fair value is greater than the recorded investment are not measured at fair value in the Consolidated Statements of Financial Condition and are not included in this disclosure.

OREO

The fair value of OREO is measured using the current appraised value of the properties. In certain circumstances, a current appraisal may not be available or may not represent an accurate measurement of the property's fair value due to outdated market information or other factors. In these cases, the fair value is determined based on the lower of the (i) most recent appraised value, (ii) broker price opinion, (iii) current listing price, or (iv) signed sales contract. Given these valuation methods, OREO is classified in level 3 of the fair value hierarchy.

Loans Held-for-Sale

As of March 31, 2019 and December 31, 2018, loans held-for-sale consists of 1-4 family mortgage loans, which were originated with the intent to sell. These loans were recorded in the held-for-sale category at the contract price and, accordingly, are classified in level 3 of the fair value hierarchy. ~~As of December 31, 2017, loans held-for-sale consists of 1-4 family mortgage loans, which were originated with the intent to sell, and a corporate loan.~~

Assets Held-for-Sale

Assets held-for-sale as of March 31, ~~2018~~2019 and December 31, ~~2017~~2018 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.

3637

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, 2018				December 31, 2017					March 31, 2019				December 31, 2018
	Fair Value Hierarchy Level	Carrying Amount		Fair Value		Carrying Amount		Fair Value		Fair Value Hierarchy Level	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Assets
Cash and due from banks	1	$	150,138	$	150,138	$	192,800	$	192,800	1	$	186,230	$	186,230	$	211,189	$	211,189
Interest-bearing deposits in other banks	2	84,898		84,898		153,770		153,770		2	76,529		76,529		78,069		78,069
Securities held-to-maturity	2	13,400		11,287		13,760		12,013		2	12,842		12,655		10,176		9,871
FHLB and FRB stock	2	80,508		80,508		69,708		69,708		2	85,790		85,790		80,302		80,302
Loans	3	10,584,932		10,256,027		10,345,397		10,059,992		3	11,467,223		11,226,795		11,346,668		11,052,040
Investment in BOLI	3	281,285		281,285		279,900		279,900		3	295,899		295,899		296,733		296,733
Accrued interest receivable	3	45,703		45,703		45,261		45,261		3	56,677		56,677		54,847		54,847
Other interest-earning assets	3	146		146		228		228
Liabilities
Deposits	2	$	11,146,022	$	11,123,916	$	11,053,325	$	11,038,819	2	$	12,160,982	$	12,148,240	$	12,084,112	$	12,064,604
Borrowed funds	2	950,688		950,688		714,884		714,884		2	973,852		973,852		906,079		906,079
Senior and subordinated debt	2	195,312		194,980		195,170		198,806		2	203,984		213,410		203,808		211,207
Accrued interest payable	2	4,107		4,107		4,704		4,704		2	9,764		9,764		10,005		10,005

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, ~~2018~~2019 and December 31, ~~2017,~~2018, the Company estimated the fair value of lending commitments outstanding to be immaterial.

3738

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 ~~the~~ Chicago, ~~suburb of Itasca,~~ Illinois, with operations throughout ~~the~~metropolitan Chicago, ~~metropolitan area,~~ northwest Indiana, central and western Illinois, and eastern ~~Iowa through over 130 banking locations.~~Iowa. Our principal subsidiary, First Midwest Bank, and other affiliates provide a ~~broad~~full range of commercial, ~~retail,~~ treasury management, equipment leasing, consumer, wealth management, trust, and private banking products and services to commercial and industrial, commercial real estate, municipal, and consumer customers. We are committed to meeting the financial needs of the people and businesses in the communities where we live and work by providing customized banking solutions, quality products, and innovative services that fulfill those financial needs.

The following discussion and analysis is intended to address the significant factors affecting our Condensed Consolidated Statements of Income for the quarters ended March 31, ~~2018~~2019 and ~~2017~~2018 and Consolidated Statements of Financial Condition as of March 31, ~~2018~~2019 and December 31, ~~2017.~~2018. When we use the terms "First Midwest," the "Company," "we," "us," and "our," we mean First Midwest Bancorp, Inc. and its consolidated subsidiaries. When we use the term "Bank," we are referring to our wholly-owned banking subsidiary, First Midwest Bank. Management's discussion and analysis should be read in conjunction with the consolidated financial statements, accompanying notes thereto, and other information presented in Item 1 of this Quarterly Report on Form 10-Q ("Form 10-Q"), as well as in our ~~2017~~2018 Annual Report on Form 10-K ("~~2017~~2018 10-K"). The results of operations for the quarter ended March 31, ~~2018~~2019 are not necessarily indicative of future results.

Our results of operations are affected by various factors, many of which are beyond our control, including interest rates, local and national economic conditions, business spending, consumer confidence, legislative and regulatory changes, certain seasonal factors, and changes in real estate and securities markets. Our management evaluates performance using a variety of qualitative and quantitative metrics. The primary quantitative metrics used by management include:

Net Interest Income – Net interest income, our primary source of revenue, equals the difference between interest income and fees earned on interest-earning assets and interest expense incurred on interest-bearing liabilities.

Net Interest Margin – Net interest margin equals tax-equivalent net interest income divided by total average interest-earning assets.

Noninterest Income – Noninterest income is the income we earn from fee-based revenues, investment in bank-owned life insurance ("BOLI"), other income, and non-operating revenues.

Noninterest Expense – Noninterest expense is the expense we incur to operate the Company, which includes salaries and employee benefits, net occupancy and equipment, professional services, and other costs.

Asset Quality – Asset quality represents an estimation of the quality of our loan portfolio, including an assessment of the credit risk related to existing and potential loss exposure, and can be evaluated using a number of quantitative measures, such as non-performing loans to total loans.

Regulatory Capital – Our regulatory capital is classified in one of the following tiers: (i) Common Equity Tier 1 capital ("CET1"), which consists of common equity and retained earnings, less goodwill and other intangible assets and a portion of disallowed deferred tax assets ("DTAs"), (ii) Tier 1 capital, which consists of CET1 ~~and qualifying trust-preferred securities~~ and the remaining portion of disallowed deferred tax assets, and (iii) Tier 2 capital, which includes qualifying subordinated debt, qualifying trust-preferred securities, and the allowance for credit losses, subject to limitations.

Some of these metrics may be presented on a ~~non-U.S.~~basis not in accordance with U.S. generally accepted accounting principles ("non-GAAP") ~~basis.~~. For detail on our non-GAAP metrics, see the discussion in the section of this Item 2 titled "Non-GAAP Financial Information and Reconciliations." Unless otherwise stated, all earnings per common share data included in this section and throughout the remainder of this discussion are presented on a fully diluted basis.

As of March 31, 2018, the Company and the Bank each had total assets of over $14.0 billion. The Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") and its implementing regulations impose various additional requirements on bank holding companies and banks with $10.0 billion or more in total consolidated assets. As a general matter, these requirements are phased in and become applicable to the Company and the Bank over various dates. For a discussion of the impact that the Dodd-Frank Act and its implementing regulations will have on the Company and the Bank now that they have each exceeded $10.0 billion in total consolidated assets, see the "Supervision and Regulation" section in Item 1, "Business" and Item 1A, "Risk Factors" in the Company's 2017 10-K, as well as our subsequent filings made with the Securities and Exchange Commission ("SEC").

~~Table of Contents~~

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Form 10-Q, as well as any oral statements made by or on behalf of First Midwest, may contain certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. In some cases, forward-looking statements can be identified by the use of words such as "may," "might," "will," "would," "should," "could," "expect," "plan," "intend," "anticipate," "believe," "estimate," "outlook," "predict," "project," "probable," "potential," "possible," "target," "continue," "look forward," or ~~"assume,"~~"assume" and words of similar import. Forward-looking statements are not historical facts or guarantees of future performance but instead express only management's beliefs regarding future results or events, many of which, by their nature, are inherently uncertain and outside of management's control. It is possible that actual results and events may differ, possibly materially, from the anticipated results or events indicated in these forward-looking statements. ~~Forward-looking statements are not guarantees of future performance or outcome, and we caution~~First Midwest cautions you not to place undue reliance on these statements. Forward-looking statements ~~are made~~speak only as of the date ~~of this report,~~made, and we undertake no obligation to update any forward-looking ~~statements contained in this report to reflect new information or events or conditions after the date hereof.~~statements.

Table of Contents

Forward-looking statements may be deemed to include, among other things, statements relating to our future financial performance, including the related outlook for 2019, the performance of our loan or securities portfolio, the expected amount of future credit reserves or charge-offs, corporate strategies or objectives, including the impact of ~~strategic~~certain actions and initiatives, our Delivering Excellence initiative, including costs and benefits associated therewith and the timing thereof, anticipated trends in our business, regulatory developments, the impact of federal income tax reform legislation, acquisition transactions, including our proposed acquisition of Bridgeview, estimated synergies, cost savings and financial benefits of ~~consummated~~completed transactions, and growth strategies, including possible future acquisitions. These statements are subject to certain risks, uncertainties and ~~assumptions. For a discussion of these risks, uncertainties, and~~ assumptions, ~~you should refer to~~including those discussed under the sections entitled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this report and in our ~~2017~~2018 10-K, as well as our subsequent filings made with the ~~SEC. However, these~~Securities and Exchange Commission ("SEC"). These risks and uncertainties are not ~~exhaustive. Other~~exhaustive, and other sections of ~~this report~~these reports describe additional factors that could adversely impact our business and financial performance.

CRITICAL ACCOUNTING ESTIMATES

Our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles ("GAAP") and are consistent with general ~~practice~~practices within the banking industry. Application of GAAP requires management to make estimates, assumptions, and judgments based on the best available information ~~available~~ as of the date of the financial statements that affect the amounts reported in the consolidated financial statements and accompanying notes. Critical accounting estimates are those estimates that management believes are the most important to our financial position and results of operations. Future changes in information may impact these estimates, assumptions, and judgments, which may have a material effect on the amounts reported in the financial statements.

For additional information regarding critical accounting estimates, see the "Summary of Significant Accounting Policies," presented in Note 1 to the Consolidated Financial Statements and the section titled "Critical Accounting Estimates" in ~~Management's~~"Management's Discussion and Analysis of Financial Condition and Results of ~~Operations~~Operations" included in ~~the Company's 2017~~our 2018 10-K. There have been no material changes in the Company's application of critical accounting estimates related to the allowance for credit losses, valuation of securities, income taxes, and goodwill and other intangible assets since December 31, ~~2017.~~2018.

ACQUISITIONS

Completed

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 million of assets under management at closing.

Pending

Bridgeview Bancorp, Inc.

STOCK REPURCHASE PROGRAM

On March 19, 2019, the Company announced a new stock repurchase program that authorizes the Company to repurchase up to $180 million of its common stock, or approximately 7.5% of the Company's outstanding shares. Stock repurchases under this program may be made from time to time on the open market or in privately negotiated transactions, at the discretion of the Company. The program will be in effect for a one-year period, with repurchases made at prices to be determined by the Company.

3940

Table of Contents

PERFORMANCE OVERVIEW

Table 1

Selected Financial Data

(Amounts in thousands, except per share data)


	Quarters Ended March 31,						Quarters Ended March 31,
	2018			2017			2019			2018
Operating Results
Interest income	$	131,345		$	123,699		$	162,490		$	131,345
Interest expense	12,782			8,502			23,466			12,782
Net interest income	118,563			115,197			139,024			118,563
Provision for loan losses	15,181			4,918			10,444			15,181
Noninterest income	35,517			39,951			34,906			35,517
Noninterest expense	95,582			116,642			102,110			95,582
Income before income tax expense	43,317			33,588			61,376			43,317
Income tax expense	9,807			10,733			15,318			9,807
Net income	$	33,510		$	22,855		$	46,058		$	33,510
Weighted-average diluted common shares outstanding	101,938			100,432			105,770			101,938
Diluted earnings per common share	$	0.33		$	0.23		$	0.43		$	0.33
Diluted earnings per common share, adjusted⁽²⁾⁽¹⁾	$	0.33		$	0.34		$	0.46		$	0.33
Performance Ratios
Return on average common equity⁽³⁾⁽²⁾	7.19		%	5.20		%	8.66		%	7.19		%
Return on average common equity, adjusted⁽³⁾⁽²⁾	7.19		%	7.76		%	9.22		%	7.19		%
Return on average tangible common equity⁽³⁾⁽²⁾	12.50		%	9.53		%	14.41		%	12.50		%
Return on average tangible common equity, adjusted⁽³⁾⁽²⁾	12.50		%	13.99		%	15.31		%	12.50		%
Return on average assets⁽³⁾⁽²⁾	0.96		%	0.68		%	1.19		%	0.96		%
Return on average assets, adjusted⁽³⁾⁽²⁾	0.96		%	1.01		%	1.27		%	0.96		%
Tax-equivalent net interest margin⁽⁴⁾⁽³⁾	3.80		%	3.89		%	4.04		%	3.80		%
Efficiency ratio⁽²⁾⁽¹⁾	60.96		%	61.31		%	55.69		%	60.96		%
Efficiency ratio (prior presentation)⁽⁵⁾	N/A			60.98		%


⁽¹⁾	Adjustments to net income include acquisition and integration related expenses associated with completed and pending acquisitions (first quarter 2017). For additional discussion of adjustments, see the "Non-GAAP Financial Information and Reconciliations" section.


⁽²⁾	This item is a non-GAAP financial measure. For a discussion of non-GAAP financial measures, see the section of this Item 2 titled "Non-GAAP Financial Information and Reconciliations."


⁽³⁾⁽²⁾	These ratios are presented on an annualized basis.


⁽⁴⁾⁽³⁾	See the section of this Item 2 titled "Earnings Performance" below for additional discussion and calculation of this financial measure.


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

4041

Table of Contents


	As of									March 31, 2018 Change From						As of									March 31, 2019 Change From
	March 31, 2018			December 31, 2017			March 31, 2017			December 31, 2017			March 31, 2017			March 31, 2019			December 31, 2018			March 31, 2018			December 31, 2018			March 31, 2018
Balance Sheet Highlights
Total assets	$	14,379,971		$	14,077,052		$	13,773,471		$	302,919		$	606,500		$	15,817,769		$	15,505,649		$	14,379,971		$	312,120		$	1,437,798
Total loans	10,676,774			10,437,812			10,054,370			238,962			622,404			11,569,003			11,446,783			10,676,774			122,220			892,229
Total deposits	11,146,022			11,053,325			10,956,541			92,697			189,481			12,160,982			12,084,112			11,146,022			76,870			1,014,960
Core deposits	9,339,760			9,406,542			9,415,286			(66,782		)	(75,526		)	9,559,684			9,543,208			9,339,760			16,476			219,924
Loans to deposits	95.8		%	94.4		%	91.8		%							95.1		%	94.7		%	95.8		%
Core deposits to total deposits	83.8		%	85.1		%	85.9		%							78.6		%	79.0		%	83.8		%
Asset Quality Highlights
Non-accrual loans	$	75,015		$	66,924		$	54,294		$	8,091		$	20,721		$	70,205		$	56,935		$	75,015		$	13,270		$	(4,810	)
90 days or more past due loans, still accruing interest⁽¹⁾	4,633			3,555			2,633			1,078			2,000			8,446			8,282			4,633			164			3,813
Total non-performing loans	79,648			70,479			56,927			9,169			22,721			78,651			65,217			79,648			13,434			(997		)
Accruing troubled debt restructurings ("TDRs")	1,778			1,796			2,112			(18		)	(334		)	1,844			1,866			1,778			(22		)	66
Other real estate owned ("OREO")	17,472			20,851			29,140			(3,379		)	(11,668		)	10,818			12,821			17,472			(2,003		)	(6,654		)
Total non-performing assets	$	98,898		$	93,126		$	88,179		$	5,772		$	10,719		$	91,313		$	79,904		$	98,898		$	11,409		$	(7,585	)
30-89 days past due loans⁽¹⁾	$	42,573		$	39,725		$	23,641		$	2,848		$	18,932		$	45,764		$	37,524		$	42,573		$	8,240		$	3,191
Non-performing assets to total loans plus OREO	0.92		%	0.89		%	0.87		%							0.79		%	0.70		%	0.92		%
Allowance for Credit Losses
Allowance for credit losses	$	95,854		$	96,729		$	89,163		$	(875	)	$	6,691		$	104,779		$	103,419		$	95,854		$	1,360		$	8,925
Allowance for credit losses to total loans⁽²⁾	0.90		%	0.93		%	0.89		%							0.91		%	0.90		%	0.90		%
Allowance for credit losses to total loans, excluding acquired loans⁽³⁾	1.01		%	1.07		%	1.11		%							1.00		%	1.01		%	1.01		%
Allowance for credit losses to non-accrual loans⁽²⁾	127.78		%	144.54		%	164.22		%							149.25		%	181.64		%	127.78		%


⁽¹⁾	Purchased credit impaired ("PCI") loans with an accretable yield are considered current and are not included in past due loan totals.

⁽²⁾

This ratio includes acquired loans that are recorded at fair value through an acquisition adjustment, which incorporates credit risk as of the acquisition date with no allowance for credit losses being established at that time. As the acquisition adjustment is accreted into income over future periods, an allowance for credit losses is established as necessary to reflect credit deterioration. A discussion of the allowance for acquired loan losses and the related acquisition adjustment is presented in the section titled "Loan Portfolio and Credit Quality."


⁽³⁾	~~The allowance for credit losses to total loans, excluding acquired loans~~This item is a non-GAAP financial measure. For a discussion of non-GAAP financial measures, see the section of this Item 2 titled "Non-GAAP Financial Information and Reconciliations."

Net income for the first quarter of ~~2018~~2019 was $46.1 million, or $0.43 per share, up from $33.5 million or $0.33 ~~per share, compared to $22.9 million, or $0.23~~ per share, for the first quarter of ~~2017. Performance~~2018. Reported results for the first quarter of ~~2017 was~~2019 were impacted by acquisition and integration related ~~pre-tax~~ expenses ~~of $18.6 million.~~and implementation costs related to the Company's Delivering Excellence initiative. Excluding these expenses, net income for the first quarter of ~~2017~~2019 was ~~$33.8~~$49.0 million, or ~~$0.34~~$0.46 per ~~share.~~share, compared to $33.5 million, or $0.33 per share, for the same period in 2018. The ~~modest decrease~~increase in net income, adjusted, and earnings per share, ~~excluding acquisition and integration related expenses,~~adjusted, compared to the first quarter of ~~2017~~2018 reflects higher net interest income and lower provision for loan losses, partially offset by higher ~~net interest income and~~ noninterest ~~income, controlled noninterest expenses, and~~expense, a ~~lower~~higher effective income tax ~~rate.~~rate, and slightly lower noninterest income. A discussion of net interest income, noninterest income, noninterest expense, and income tax expense is presented in the following section titled "Earnings Performance."

Total loans of ~~$10.7~~$11.6 billion grew by ~~$239.0~~$122.2 million, or ~~9.3%~~4.3% annualized, from December 31, ~~2017.~~2018.

Non-performing assets to total loans plus OREO was ~~0.92%~~0.79% at March 31, ~~2018, up from 0.89%~~2019, compared to 0.70% and ~~0.87%~~0.92% at December 31, ~~2017~~2018 and March 31, ~~2017,~~2018, respectively. See the following "Loan Portfolio and Credit Quality" section for further discussion of our loan portfolio, non-accrual loans, 90 days or more past due loans, TDRs, and OREO.

4142

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 ~~2017~~2018 10-K.

Our accounting and reporting policies conform to GAAP and general practices within the banking industry. For purposes of this discussion, both net interest income and net interest margin have been adjusted to a fully tax-equivalent basis to more appropriately compare the returns on certain tax-exempt loans and securities to those on taxable interest-earning assets. The effect of this adjustment is shown at the bottom of ~~Tables~~Table 2. Although we believe that these non-GAAP financial measures enhance investors' understanding of our business and performance, they should not be considered an alternative to GAAP. For a discussion of non-GAAP financial measures, see the section of this Item 2 titled "Non-GAAP Financial Information and Reconciliations."

Table 2 summarizes our average interest-earning assets and interest-bearing liabilities for the quarters ended March 31, ~~2018~~2019 and ~~2017,~~2018, the related interest income and interest expense for each earning asset category and funding source, and the average interest rates earned and paid. Table 2 also details differences in interest income and expense from the prior quarter and the extent to which any changes are attributable to volume and rate fluctuations.

4243

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 March 31,														Attribution of Change in Net Interest Income
	2018							2017							Attribution of Change in Net Interest Income									2019							2018							Attribution of Change in Net Interest Income
	Average Balance			Interest			Yield/ Rate (%)	Average Balance			Interest			Yield/ Rate (%)	Volume			Yield/ Rate			Total			Average Balance			Interest			Yield/ Rate (%)	Average Balance			Interest			Yield/ Rate (%)	Volume			Yield/ Rate			Total
Assets
Other interest-earning assets	$	112,137		$	423		1.53	$	215,915		$	441		0.83	$	(206	)	$	188		$	(18	)	$	125,615		$	728		2.35	$	112,137		$	423		1.53	$	56		$	249		$	305
Securities⁽¹⁾	2,063,223			12,141			2.35	2,021,157			11,535			2.28	233			373			606			2,371,692			16,387			2.76	2,063,223			12,141			2.35	2,068			2,178			4,246
Federal Home Loan Bank ("FHLB") and Federal Reserve Bank ("FRB") stock	76,883			438			2.28	54,219			368			2.71	114			(44		)	70			79,821			952			4.77	76,883			438			2.28	17			497			514
Loans⁽¹⁾⁽²⁾	10,499,283			119,318			4.61	9,920,513			113,409			4.64	6,413			(504		)	5,909			11,458,233			145,531			5.15	10,499,283			119,318			4.61	11,458			14,755			26,213
Total interest-earning assets⁽¹⁾⁽²⁾	12,751,526			132,320			4.20	12,211,804			125,753			4.17	6,554			13			6,567			14,035,361			163,598			4.72	12,751,526			132,320			4.20	13,599			17,679			31,278
Cash and due from banks	181,797							176,953																202,101							181,797
Allowance for loan losses	(99,234		)					(89,065		)														(107,520		)					(99,234		)
Other assets	1,352,964							1,373,433																1,537,897							1,352,964
Total assets	$	14,187,053						$	13,673,125															$	15,667,839						$	14,187,053
Liabilities and Stockholders' Equity	Liabilities and Stockholders' Equity																							Liabilities and Stockholders' Equity
Savings deposits	$	2,015,679		368			0.07	$	2,029,631		400			0.08	(3		)	(29		)	(32		)	$	2,037,831		346			0.07	$	2,015,679		368			0.07	4			(26		)	(22		)
NOW accounts	1,992,672			1,048			0.21	1,916,816			478			0.10	20			550			570			2,083,366			2,162			0.42	1,992,672			1,048			0.21	50			1,064			1,114
Money market deposits	1,814,057			824			0.18	1,890,703			619			0.13	(24		)	229			205			1,809,234			2,349			0.53	1,814,057			824			0.18	(2		)	1,527			1,525
Time deposits	1,735,155			3,939			0.92	1,515,597			1,712			0.46	279			1,948			2,227			2,647,316			11,745			1.80	1,735,155			3,939			0.92	2,773			5,033			7,806
Borrowed funds	858,297			3,479			1.64	734,091			2,194			1.21	414			871			1,285			877,995			3,551			1.64	858,297			3,479			1.64	80			(8		)	72
Senior and subordinated debt	195,243			3,124			6.49	194,677			3,099			6.46	9			16			25			203,899			3,313			6.59	195,243			3,124			6.49	147			42			189
Total interest-bearing liabilities	8,611,103			12,782			0.60	8,281,515			8,502			0.42	695			3,585			4,280			9,659,641			23,466			0.99	8,611,103			12,782			0.60	3,052			7,632			10,684
Demand deposits	3,466,832							3,355,674																3,587,480							3,466,832
Total funding sources	12,077,935						0.43	11,637,189						0.30										13,247,121						0.72	12,077,935						0.43
Other liabilities	235,699							272,398																282,437							235,699
Stockholders' equity - common	1,873,419							1,763,538
Stockholders' equity – common																								2,138,281							1,873,419
Total liabilities and stockholders' equity	$	14,187,053						$	13,673,125															$	15,667,839						$	14,187,053
Tax-equivalent net interest income/margin⁽¹⁾				119,538			3.80				117,251			3.89	$	5,859		$	(3,572	)	$	2,287					140,132			4.04				119,538			3.80	$	10,547		$	10,047		$	20,594
Tax-equivalent adjustment				(975		)					(2,054		)														(1,108		)					(975		)
Net interest income (GAAP)				$	118,563						$	115,197															$	139,024						$	118,563
Impact of acquired loan accretion⁽¹⁾				$	5,112		0.16				$	11,345		0.38													$	6,369		0.18				$	5,112		0.16
Tax-equivalent net interest income/ margin, adjusted⁽¹⁾				$	114,426		3.64				$	105,906		3.51													$	133,763		3.86				$	114,426		3.64

⁽¹⁾

Interest income and yields on tax-exempt securities and loans are presented on a tax-equivalent basis, assuming ~~the applicable federal income tax rate for each period presented. As~~ a ~~result, interest income and yields on tax-exempt securities and loans subsequent to December 31, 2017 are presented at the current~~ federal income tax rate of 21% ~~and prior periods are presented using the federal income tax rate applicable at that time, or 35%~~. The corresponding income tax impact related to tax-exempt items is recorded in income tax expense. These adjustments have no impact on net income. See ~~the"Non-GAAP~~the section of this Item 2 titled "Non-GAAP Financial Information and Reconciliations"~~section presented later in this Item 2~~ for a discussion of this non-GAAP financial measure.


⁽²⁾	Non-accrual loans, which totaled $70.2 million as of March 31, 2019 and $75.0 million as of March 31, 2018, ~~and $54.3 million as of March 31, 2017,~~ are included in loans for purposes of this analysis. Additional detail regarding non-accrual loans is presented in the following section of this Item 2 titled "Non-performing Assets and Corporate Performing Potential Problem Loans."

Net interest income ~~increased by 2.9%~~for the first quarter of 2019 was up 17.3% compared to the first quarter of ~~2017.~~2018. The rise in net interest income ~~compared to~~resulted primarily from the ~~first~~acquisition of interest-earning assets from the Northern States Financial Corporation ("Northern States") transaction in the fourth quarter of ~~2017 was driven primarily by~~2018, higher interest rates, growth in loans and securities, and higher acquired loan ~~growth,~~accretion, partially offset by ~~lower acquired loan accretion and~~ higher cost of funds.

4344

Table of Contents

Acquired loan accretion contributed ~~$5.1~~$6.4 million and ~~$11.3~~$5.1 million to net interest income for the first quarter of ~~2018~~2019 and ~~2017,~~2018, respectively.

Tax-equivalent net interest margin for the current quarter was 4.04%, increasing 24 basis points from the first quarter of 2018 ~~was 3.80%, decreasing 9 basis points from~~as the same period in 2017. The decrease in tax-equivalent net interest margin compared to the first quarter of 2017 was due primarily to a 22 basis point decrease in acquired loan accretion, partially offset by the positive impactbenefit of higher interest ~~rates.~~rates more than offset the rise in funding costs. In addition, tax-equivalent net interest margin was impacted by a 2 basis point increase in acquired loan accretion.

For the first quarter of 2019, total average interest-earning assets rose by $1.3 billion from the first quarter of 2018. The increase resulted primarily from the Northern States transaction, organic loan growth, and security purchases.

Total average funding sources for the first quarter of ~~2018 was negatively impacted~~2019 increased by ~~a 3 basis points reduction in the tax-equivalent adjustment as a result of lower federal income tax rates.~~

~~Total average interest-earning assets rose by $539.7 million~~$1.2 billion from the first quarter of ~~2017. The increase resulted primarily from loan growth, which was partially offset by a reduction in other interest-earning assets.~~

~~Compared to the first quarter of 2017, total average funding sources increased by $440.7 million,~~2018, due primarily to ~~an increase in FHLB advances~~the Northern States transaction and time deposits.

Noninterest Income

A summary of noninterest income for the quarters ended March 31, ~~2018~~2019 and ~~2017~~2018 is presented in the following table.

Table 3

Noninterest Income Analysis

(Dollar amounts in thousands)

Quarters Ended
March 31,
2018 2017 % Change
Service charges on deposit accounts $ 11,652
$ 11,365
2.5
Wealth management fees 10,958
9,660
13.4
Card-based fees, net⁽¹⁾⁽²⁾:

Card-based fees 5,692
8,116
(29.9 )
Cardholder expenses (1,759 ) —
—
Card-based fees, net 3,933
8,116
(51.5 )
Mortgage banking income 2,397
1,888
27.0
Capital market products income 1,558
1,376
13.2
Merchant servicing fees, net⁽¹⁾⁽³⁾:

Merchant servicing fees 2,237
3,135
(28.6 )
Merchant card expenses (1,907 ) —
—
Merchant servicing fees, net 330
3,135
(89.5 )
Other service charges, commissions, and fees 2,218
2,307
(3.9 )
Other income⁽⁴⁾
2,471
2,104
17.4
Total noninterest income $ 35,517
$ 39,951
(11.1 )



	Quarters Ended March 31,
	2019		2018		% Change
Service charges on deposit accounts	$	11,540	$	11,652	(1.0	)
Wealth management fees	11,600		10,958		5.9
Card-based fees, net ⁽¹⁾	4,378		3,933		11.3
Capital market products income	1,279		1,558		(17.9	)
Mortgage banking income	1,004		2,397		(58.1	)
Merchant servicing fees, net	337		330		2.1
Other service charges, commissions, and fees	2,274		2,218		2.5
Total fee-based revenues	32,412		33,046		(1.9	)
Other income⁽²⁾	2,494		2,471		0.9
Total noninterest income	$	34,906	$	35,517	(1.7	)

⁽¹⁾

As a result of accounting guidance adopted in the first quarter of 2018, certain noninterest income line items and the related noninterest expense line items that are presented on a gross basis for the prior periods are presented on a net basis in noninterest income for the current period. For further discussion of this guidance, see Note 2 of "Notes to the Consolidated Financial Statements" in Item 1 of this Form 10-Q.


⁽²⁾	Card-based fees, net ~~consist~~consists of debit and credit card interchange fees for processing transactions, ~~as well as~~ various fees on both consumer and non-customer automated teller machine ("ATM") and point-of-sale transactions processed through the ATM and point-of-sale networks, as well as the related cardholder expense.


⁽³⁾	~~Merchant servicing fees are included in other service charges, commissions, and fees in the Condensed Consolidated Statements of Income.~~


⁽⁴⁾⁽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 ~~for~~of $34.9 million was down 1.7% from the first quarter of ~~2018~~2018. The increase in wealth management fees was driven primarily by customers acquired in the Northern Oak transaction. The rise in net card-based fees benefitted from higher transaction volumes and services provided to customers acquired in the Northern States transaction. Capital market products income fluctuates from quarter to quarter based on the size and frequency of ~~$35.5~~sales to corporate clients. The decrease in mortgage banking income resulted primarily from a reduction in the fair value of mortgage servicing rights during the first quarter of 2019. The change in the fair value of mortgage servicing rights fluctuates from quarter to quarter and resulted in a decrease to mortgage banking income of $1.1 million ~~was down 11.1%~~ compared to the first quarter of 2017. In the first quarter of 2018, the Company adopted accounting guidance which impacted how cardholder and merchant card expenses are presented within noninterest income on a prospective basis. As a result, these expenses are presented on a net basis against the related noninterest income for the first quarter of 2018 versus a gross basis within noninterest expense for the prior period. In addition, the Durbin Amendment of the Dodd-Frank Act ("Durbin") became effective for the Company in the third quarter of 2017. Excluding the $3.7 million reclassification impact of accounting guidance adopted in the first quarter of 2018 on the current period2018.

4445

Table of Contents

and the $2.9 million impact of Durbin on the first quarter of 2017, noninterest income was $39.2 million, up 5.8% from $37.1 million in the first quarter of 2017. This item is a non-GAAP financial measure. For a discussion of non-GAAP financial measures, see the section of this Item 2 titled "Non-GAAP Financial Information and Reconciliations."

Net card-based fees were up 8.4% compared to the first quarter of 2017, excluding the accounting reclassification and Durbin, due to higher transaction volumes. Compared to the first quarter of 2017, the increase in wealth management fees was driven primarily by the full quarter impact of customers acquired in the Premier Asset Management LLC ("Premier") transaction and organic growth. The decline in merchant servicing fees from the first quarter of 2017 reflected lower customer volumes, substantially offset by the decline in merchant card expense.

Mortgage banking income for the first quarter of 2018 resulted from sales of $63.8 million of 1-4 family mortgage loans in the secondary market, compared to $54.6 million in the first quarter of 2017. In addition, mortgage banking income for the first quarter of 2018 was positively impacted by changes in the fair value of mortgage servicing rights, which fluctuate from quarter to quarter.

Noninterest Expense

A summary of noninterest expense for the quarters ended March 31, ~~2018~~2019 and ~~2017~~2018 is presented in the following table.

Table 4

Noninterest Expense Analysis

(Dollar amounts in thousands)


	Quarters Ended March 31,						Quarters Ended March 31,
	2018		2017		% Change		2019			2018		% Change
Salaries and employee benefits:
Salaries and wages	$	45,830	$	44,890	2.1		$	46,135		$	45,830	0.7
Retirement and other employee benefits	10,957		10,882		0.7		11,238			10,957		2.6
Total salaries and employee benefits	56,787		55,772		1.8		57,373			56,787		1.0
Net occupancy and equipment expense	13,773		12,325		11.7		14,770			13,773		7.2
Professional services	7,580		8,463		(10.4	)	7,788			7,580		2.7
Technology and related costs	4,771		4,433		7.6		4,596			4,771		(3.7	)
Advertising and promotions	1,650		1,066		54.8		2,372			1,650		43.8
Net OREO expense	1,068		1,700		(37.2	)	681			1,068		(36.2	)
Merchant card expenses⁽¹⁾	—		2,585		(100.0	)
Cardholder expenses⁽¹⁾	—		1,764		(100.0	)
Other expenses	9,953		9,969		(0.2	)	10,581			9,953		6.3
Acquisition and integration related expenses	—		18,565		(100.0	)	3,691			—		100.0
Total noninterest expense⁽¹⁾	$	95,582	$	116,642	(18.1	)
Delivering Excellence implementation costs							258			—		100.0
Total noninterest expense							$	102,110		$	95,582	6.8
Acquisition and integration related expenses							(3,691		)	—		(100.0	)
Delivering Excellence implementation costs							(258		)	—		(100.0	)
Total noninterest expense, adjusted⁽¹⁾							$	98,161		$	95,582	2.7

⁽¹⁾

AsSee the "Non-GAAP Financial Information" section presented later in this release for a result of accounting guidance adopted in the first quarter of 2018, certain noninterest income line items and the related noninterest expense line items that are presented on a gross basis for the prior periods are presented on a net basis in noninterest income for the current period. For further discussion of this ~~guidance, see Note 2 of "Notes to the Consolidated Financial Statements" in Item 1 of this Form 10-Q.~~non-GAAP financial measure.

Total noninterest expense ~~of $95.6 million decreased~~increased by ~~18.1% compared to~~6.8% from the first quarter of ~~2017. In~~2018. During the first quarter of 2018, the Company adopted accounting guidance which impacted how cardholder and merchant card expenses are presented within noninterest income on a prospective basis. As a result, these expenses are presented on a net basis against the related noninterest income for the first quarter of 2018 versus a gross basis within2019, noninterest expense ~~for the prior period. Excluding the $3.7 million reclassification impact of this accounting guidance on the current period and $18.6 million~~was impacted by acquisition and integration related expenses ~~that resulted from~~and costs related to the ~~acquisition~~implementation of ~~Standard Bancshares, Inc ("Standard") in~~ the ~~first quarter of 2017,~~Delivering Excellence initiative. Excluding these items, noninterest expense for the first quarter of ~~2018~~2019 was ~~$99.2~~$98.2 million, up 2.7% from first quarter of 2018.

Salaries and employee benefits were consistent with ~~$98.1 million~~the first quarter of 2018 as higher costs associated with organizational growth and merit increases were offset by the ongoing benefits of the Delivering Excellence initiative. Net occupancy and equipment expense increased due to the adoption of lease accounting guidance in the first quarter of ~~2017. This item is a non-GAAP financial measure. For a discussion of non-GAAP financial measures, see the section~~2019. Upon adoption of this ~~Item 2 titled "Non-GAAP Financial Information~~guidance, a deferred gain that resulted from a prior sale-leaseback transaction is no longer included as a reduction in net occupancy and ~~Reconciliations."~~equipment expense in the amount of approximately $1.5 million quarterly. Advertising and promotions expense increased due to higher costs related to marketing campaigns. The decrease in net OREO expense was due mainly to higher levels of gains on sales of properties and a reduction in operating expenses.

~~The increase in salaries~~Acquisition and ~~wages compared to~~integration related expenses for the first quarter of ~~2017 was driven primarily by merit increases~~2019 resulted from the acquisition of Northern States and ~~organizational growth. Compared to~~Northern Oak and the pending acquisition of Bridgeview.

Delivering Excellence implementation costs for the first quarter of 2017, net occupancy and equipment expenses increased as a result of higher costs related to winter weather conditions and the timing of expenses related to the Company's planned corporate headquarters relocation. Professional services expense declined compared to the first quarter of 2017 due to lower loan remediation expenses. Compared to the first quarter of 2017, the rise in advertising and promotions expense2019 resulted from certain actions initiated by the ~~timing of certain advertising costs.~~Company in connection with its Delivering Excellence initiative and include property valuation adjustments on locations identified for closure, employee severance, and general restructuring and advisory services.

4546

Table of Contents

~~Net OREO expense decreased compared to the first quarter of 2017 as a result of lower levels of operating expenses, losses on sales, and valuation adjustments.~~

Income Taxes

Our provision for income taxes includes both federal and state income tax expense. An analysis of the provision for income taxes for the quarters ended March 31, ~~2018~~2019 and ~~2017~~2018 is detailed in the following table.

Table 5

Income Tax Expense Analysis

(Dollar amounts in thousands)


	Quarters Ended March 31,						Quarters Ended March 31,
	2018			2017			2019			2018
Income before income tax expense	$	43,317		$	33,588		$	61,376		$	43,317
Income tax expense:
Federal income tax expense	$	7,146		$	8,895		$	11,066		$	7,146
State income tax expense	2,661			1,838			4,252			2,661
Total income tax expense	$	9,807		$	10,733		$	15,318		$	9,807
Effective income tax rate	22.6		%	32.0		%	25.0		%	22.6		%

Federal income tax expense and the related effective income tax rate are influenced by the amount of tax-exempt income derived from investment securities and BOLI in relation to pre-tax income ~~and~~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.

The ~~decrease~~increase in the effective tax rate ~~compared to~~and total income tax expense for the first quarter of ~~2017~~2019 was driven primarily by the reduction in the federal income tax rate from 35% to 21% which became effective in the first quarter of 2018 as a result of federal income tax reform. In addition, the first quarter of 2018 was impacted by a $1.0 million income tax benefit related to employee share-based ~~payments.~~

~~Total~~payments that impacted the first quarter of 2018. In addition, total income tax expense for the first quarter of ~~2018~~2019 was ~~down 8.6%~~up $5.5 million compared to the same period in the prior ~~year. Higher~~year as a result of higher levels of income subject to tax at statutory ~~rates and a decrease in tax-exempt income compared to the first quarter of 2017 were more than offset by the decrease in the federal income tax rate.~~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 15 to the Consolidated Financial Statements of our ~~2017~~2018 10-K.

FINANCIAL CONDITION

Investment Portfolio Management

Securities that we have the intent and ability to hold until maturity are classified as securities held-to-maturity and are accounted for using historical cost, adjusted for amortization of premiums and accretion of discounts. Equity securities are carried at fair value and consist primarily of community development investments and certain diversified investment securities held in a grantor trust for participants in the Company's nonqualified deferred compensation plan that are invested in money market and mutual funds. All other securities are classified as securities available-for-sale and are carried at fair value with unrealized gains and losses, net of related deferred income taxes, recorded in stockholders' equity as a separate component of accumulated other comprehensive loss.

We manage our investment portfolio to maximize the return on invested funds within acceptable risk guidelines, to meet pledging and liquidity requirements, and to adjust balance sheet interest rate sensitivity to mitigate the impact of changes in interest rates on net interest income.

4647

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 6

Investment Portfolio

(Dollar amounts in thousands)


		As of March 31, 2018								As of December 31, 2017									As of March 31, 2019								As of December 31, 2018
		Amortized Cost		Net Unrealized Gains (Losses)			Fair Value		% of Total	Amortized Cost		Net Unrealized Gains (Losses)			Fair Value		% of Total		Amortized Cost		Net Unrealized Gains (Losses)			Fair Value		% of Total	Amortized Cost		Net Unrealized Gains (Losses)			Fair Value		% of Total
Securities Available-for-Sale	Securities Available-for-Sale																	Securities Available-for-Sale
U.S. treasury securities		$	50,487	$	(296	)	$	50,191	2.5	$	46,529	$	(184	)	$	46,345	2.5		$	40,938	$	(46	)	$	40,892	1.8	$	37,925	$	(158	)	$	37,767	1.7
U.S. agency securities		160,936		(1,398		)	159,538		7.8	157,636		(789		)	156,847		8.3		129,486		(1,165		)	128,321		5.5	144,125		(1,562		)	142,563		6.3
Collateralized mortgage obligations ("CMOs")		1,213,796		(32,061		)	1,181,735		57.9	1,113,019		(17,833		)	1,095,186		58.1		1,365,007		(7,977		)	1,357,030		57.7	1,336,531		(21,322		)	1,315,209		57.9
Other mortgage-backed securities ("MBSs")		434,485		(11,123		)	423,362		20.7	373,676		(4,133		)	369,543		19.6		491,689		(4,663		)	487,026		20.7	477,665		(10,731		)	466,934		20.5
Municipal securities		217,855		(3,871		)	213,984		10.5	209,558		(567		)	208,991		11.1		231,790		1,686			233,476		9.9	229,600		(2,413		)	227,187		10.0
Corporate debt securities		12,161		(21		)	12,140		0.6	—		—			—		—		104,444		(994		)	103,450		4.4	86,074		(3,725		)	82,349		3.6
Equity securities⁽¹⁾		—		—			—		—	7,408		(111		)	7,297		0.4
Total securities available-for-sale		$	2,089,720	$	(48,770	)	$	2,040,950	100.0	$	1,907,826	$	(23,617	)	$	1,884,209	100.0		$	2,363,354	$	(13,159	)	$	2,350,195	100.0	$	2,311,920	$	(39,911	)	$	2,272,009	100.0
Securities Held-to-Maturity	Securities Held-to-Maturity																	Securities Held-to-Maturity
Municipal securities		$	13,400	$	(2,113	)	$	11,287		$	13,760	$	(1,747	)	$	12,013			$	12,842	$	(187	)	$	12,655		$	10,176	$	(305	)	$	9,871
Equity Securities⁽¹⁾							$	28,513							$	—
Trading Securities⁽¹⁾							$	—							$	20,447
Equity Securities																								$	33,304							$	30,806

⁽¹⁾

As a result of accounting guidance adopted in the first quarter of 2018, equity securities are no longer presented within trading securities or securities available-for-sale and are now presented within equity securities in the Consolidated Statements of Financial Condition for the current period. For further discussion of this guidance, see Note 2 of "Notes to the Consolidated Financial Statements" in Item 1 of this Form 10-Q.

Portfolio Composition

As of March 31, ~~2018,~~2019, our securities available-for-sale portfolio totaled ~~$2.0~~$2.4 billion, increasing ~~$156.7~~by $78.2 million, or ~~8.3%~~3.4%, from December 31, ~~2017.~~2018. The increase from December 31, ~~2017~~2018 was driven primarily by $131.7 million of purchases, consisting primarily of CMOs, MBSs, and ~~MBSs in light~~corporate debt securities, partially offset by $77.6 million of ~~current market conditions. For additional detail regarding sales of securities see the "Realized Gains~~maturities, calls, and ~~Losses" section below.~~prepayments.

Investments in municipal securities consist of general obligations of local municipalities in various states. Our municipal securities portfolio has historically experienced very low default rates and provides a predictable cash flow.

4748

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, 2019 and December 31, 2018.

Table 7

Securities Effective Duration Analysis

As of March 31, 2018 As of December 31, 2017
Effective Average Yield to Effective Average Yield to

Duration⁽¹⁾

Life⁽²⁾

Maturity⁽³⁾

Duration⁽¹⁾

Life⁽²⁾

Maturity⁽³⁾
Securities Available-for-Sale
U.S. treasury securities 1.10 % 1.13
1.54 % 1.01 % 1.03
1.30 %
U.S. agency securities 1.82 % 3.22
1.96 % 1.80 % 3.22
1.74 %
CMOs 3.75 % 4.72
2.44 % 3.36 % 4.51
2.35 %
MBSs 4.17 % 5.60
2.50 % 3.77 % 5.29
2.30 %
Municipal securities 4.75 % 5.05
2.60 % 4.47 % 4.87
3.04 %
Corporate debt securities 0.28 % 7.98
3.32 % N/M
N/M
N/M
Total securities available-for-sale 3.71 % 4.75
2.41 % 3.38 % 4.51
2.34 %
Securities Held-to-Maturity
Municipal securities 5.15 % 7.03
3.52 % 5.33 % 7.15
4.55 %

~~N/M – Not meaningful.~~



	As of March 31, 2019					As of December 31, 2018
	Effective		Average	Yield to		Effective		Average	Yield to
	Duration⁽¹⁾		Life⁽²⁾	Maturity⁽³⁾		Duration⁽¹⁾		Life⁽²⁾	Maturity⁽³⁾
Securities Available-for-Sale
U.S. treasury securities	1.00	%	1.03	2.33	%	1.08	%	1.12	2.23	%
U.S. agency securities	1.51	%	2.92	2.32	%	1.56	%	2.97	2.29	%
CMOs	3.04	%	4.34	2.78	%	3.53	%	4.71	2.72	%
MBSs	3.74	%	5.12	2.82	%	4.26	%	5.63	2.76	%
Municipal securities	4.56	%	4.56	2.68	%	4.81	%	5.05	2.65	%
Corporate debt securities	1.02	%	6.19	3.79	%	0.00	%	6.93	3.53	%
Total securities available-for-sale	3.13	%	4.47	2.79	%	3.51	%	4.85	2.72	%
Securities Held-to-Maturity
Municipal securities	1.02	%	1.08	4.38	%	1.27	%	1.35	3.54	%


⁽¹⁾	The effective duration represents the estimated percentage change in the fair value of the securities portfolio given a 100 basis point increase or decrease in interest rates. This measure is used to evaluate the portfolio's price volatility at a single point in time and is not intended to be a precise predictor of future fair values since those values will be influenced by a number of factors.


⁽²⁾	Average life is presented in years and represents the weighted-average time to receive half of all expected future cash flows using the dollar amount of principal paydowns, including estimated principal prepayments, as the weighting factor.


⁽³⁾	Yields on municipal securities are reflected on a tax-equivalent basis, assuming 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 ~~4.75~~4.47 years and ~~3.71%~~3.13%, respectively, as of March 31, ~~2018, up~~2019, down from ~~4.51~~4.85 years and ~~3.38%~~3.51% as of December 31, ~~2017.~~2018. The ~~increase~~decrease resulted primarily from purchases of CMOs, MBSs, and ~~MBSs.~~corporate debt securities with fixed rates and similar maturities.

Realized Gains and Losses

There were no net securities gains or impairment charges recognized during the first quarters of ~~2018~~2019 and 2017. During the first quarter of 2017, $210.2 million of securities acquired in the Standard transaction were sold shortly after the acquisition date and resulted in no gains or losses as they were recorded at fair value upon acquisition.2018.

Unrealized Gains and Losses

Unrealized gains and losses on securities available-for-sale represent the difference between the aggregate cost and fair value of the portfolio. These amounts are presented in the Consolidated Statements of Comprehensive Income and reported as a separate component of stockholders' equity in accumulated other comprehensive loss, ~~on an after-tax basis.~~net of deferred income taxes. This balance sheet component will fluctuate as ~~current market~~ interest rates and conditions change and affect the aggregate fair value of the portfolio. ~~Higher~~Lower market interest rates drove the ~~rise~~decrease in net unrealized losses to ~~$48.8~~$13.2 million as of March 31, ~~2018~~2019 from ~~$23.6~~$39.9 million as of December 31, ~~2017.~~2018.

Net unrealized losses in the CMO and MBS portfolio totaled ~~$32.1 million and $11.1~~$12.6 million as of March 31, ~~2018, respectively,~~2019, compared to ~~$17.8 million and $4.1~~$32.1 million as of December 31, ~~2017 for the same portfolios.~~2018. CMOs and MBSs are either backed by U.S. government-owned agencies or issued by U.S. government-sponsored enterprises. We do not believe any individual unrealized loss on these securities as of March 31, ~~2018~~2019 represents other-than-temporary securities impairment ("OTTI") related to credit deterioration. In addition, we do not intend to sell the CMOs or MBSs with unrealized losses and we do not believe it is more likely than not that we will be required to sell them before recovery of their amortized cost basis, which may be at maturity.

4849

Table of Contents

LOAN PORTFOLIO AND CREDIT QUALITY

Portfolio Composition

Our loan portfolio is comprised of both corporate and consumer loans, with corporate loans representing ~~81.2%~~79.3% of total loans as of March 31, ~~2018.~~2019. Consistent with our emphasis on relationship banking, the majority of our corporate loans are made to our core, multi-relationship customers. The customers usually maintain deposit relationships and utilize our other banking services, such as treasury or wealth management services.

To maximize loan income within an acceptable level of risk, we have certain lending policies and procedures that management reviews on a regular basis. In addition, management receives periodic reporting related to loan production, loan quality, credit concentrations, loan delinquencies, and non-performing and corporate performing potential problem loans to monitor and mitigate potential and current risks in the portfolio.

Table 8

Loan Portfolio

(Dollar amounts in thousands)


	As of March 31, 2018		% of Total Loans	As of December 31, 2017		% of Total Loans	% Change		As of March 31, 2019		% of Total Loans	As of December 31, 2018		% of Total Loans	% Change
Commercial and industrial	$	3,659,066	34.3	$	3,529,914	33.8	3.7		$	4,183,262	36.2	$	4,120,293	36.0	1.5
Agricultural	435,734		4.1	430,886		4.1	1.1		438,461		3.8	430,928		3.8	1.7
Commercial real estate:
Office, retail, and industrial	1,931,202		18.1	1,979,820		19.0	(2.5	)	1,806,892		15.6	1,820,917		15.9	(0.8	)
Multi-family	695,830		6.4	675,463		6.5	3.0		752,943		6.5	764,185		6.7	(1.5	)
Construction	585,766		5.5	539,820		5.2	8.5		683,475		5.9	649,337		5.6	5.3
Other commercial real estate	1,363,238		12.8	1,358,515		13.0	0.3		1,309,878		11.3	1,361,810		11.9	(3.8	)
Total commercial real estate	4,576,036		42.8	4,553,618		43.7	0.5		4,553,188		39.3	4,596,249		40.1	(0.9	)
Total corporate loans	8,670,836		81.2	8,514,418		81.6	1.8		9,174,911		79.3	9,147,470		79.9	0.3
Home equity	881,534		8.3	827,055		7.9	6.6		862,068		7.4	851,607		7.4	1.2
1-4 family mortgages	798,902		7.5	774,357		7.4	3.2		1,086,264		9.4	1,017,181		8.9	6.8
Installment	325,502		3.0	321,982		3.1	1.1		445,760		3.9	430,525		3.8	3.5
Total consumer loans	2,005,938		18.8	1,923,394		18.4	4.3		2,394,092		20.7	2,299,313		20.1	4.1
Total loans	$	10,676,774	100.0	$	10,437,812	100.0	2.3		$	11,569,003	100.0	$	11,446,783	100.0	1.1

Total loans of ~~$10.7~~$11.6 billion increased by ~~9.3%~~4.3%, annualized, from December 31, ~~2017.~~2018. Growth in commercial and industrial loans, primarily within our sector-based lending ~~businesses, multi-family, and construction loans~~ drove the rise in total corporate loans. The rise in construction loans was due to new loan originations and line draws on existing credits. The overall decline in office, retail, and industrial and other commercial real estate loans resulted primarily from the decision of certain customers to opportunistically sell their commercial business and investment real estate properties, as well as refinancing with non-bank lenders and real estate investors. Growth in consumer loans ~~compared to December 31, 2017 benefited~~resulted from ~~the impact of~~ purchases of shorter-duration home equity loans and 1-4 family mortgages and organic ~~production.~~growth.

Commercial, Industrial, and Agricultural Loans

Commercial, industrial, and agricultural loans represent ~~38.4%~~40.0% of total loans, and totaled ~~$4.1~~$4.6 billion at March 31, ~~2018,~~2019, an increase of ~~$134.0~~$70.5 million, or ~~3.4%~~1.5%, from December 31, ~~2017.~~2018. Our commercial and industrial loans are a diverse group of loans generally located in the Chicago metropolitan area with purposes that include supporting seasonal working capital needs, accounts receivable financing, inventory and equipment financing, and select ~~sector based~~sector-based lending, such as healthcare, asset-based lending, structured finance, and syndications. ~~Our commercial and industrial portfolio does not have significant direct exposure to the oil and gas industry.~~ Most commercial and industrial loans are secured by the assets being financed or other business assets, such as accounts receivable or inventory. The underlying collateral securing commercial and industrial loans may fluctuate in value due to the success of the business or economic conditions. For loans secured by accounts receivable, the availability of funds for repayment and economic conditions may impact the cash flow of the borrower. Accordingly, the underwriting for these loans is based primarily on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower and may incorporate a personal guarantee.

Agricultural loans are generally provided to meet seasonal production, equipment, and farm real estate borrowing needs of individual and corporate crop and livestock producers. Seasonal crop production loans are repaid by the liquidation of the financed crop that is typically covered by crop insurance. Equipment and real estate term loans are repaid through cash flows of the farming

Table of Contents

operation. Risks uniquely inherent in agricultural loans relate to weather conditions, agricultural product pricing, and loss of crops

~~Table of Contents~~

or livestock due to disease or other factors. Therefore, as part of the underwriting process, the Company examines projected future cash flows, financial statement stability, and the value of the underlying collateral.

Commercial Real Estate Loans

Commercial real estate loans are subject to underwriting standards and processes similar to commercial and industrial loans. The repayment of commercial real estate loans depends on the successful operation of the property securing the loan or the business conducted on the property securing the loan. This category of loans may be more adversely affected by conditions in ~~the~~ real estate ~~market.~~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, ~~2018~~2019 and December 31, ~~2017.~~2018.

Table 9

Commercial Real Estate Loans

(Dollar amounts in thousands)


	As of March 31, 2018		% of Total	As of December 31, 2017		% of Total	As of March 31, 2019		% of Total	As of December 31, 2018		% of Total
Office, retail, and industrial:
Office	$	809,358	17.7	$	844,413	18.5	$	679,164	14.9	$	708,146	15.4
Retail	469,321		10.3	471,781		10.4	509,982		11.2	506,099		11.0
Industrial	652,523		14.3	663,626		14.6	617,746		13.6	606,672		13.2
Total office, retail, and industrial	1,931,202		42.3	1,979,820		43.5	1,806,892		39.7	1,820,917		39.6
Multi-family	695,830		15.2	675,463		14.8	752,943		16.5	764,185		16.7
Construction	585,766		12.8	539,820		11.8	683,475		15.0	649,337		14.1
Other commercial real estate:
Multi-use properties	330,934		7.2	330,926		7.3	279,741		6.1	309,199		6.7
Rental properties	184,394		4.0	197,579		4.3	227,767		5.0	235,851		5.1
Warehouses and storage	170,218		3.7	172,505		3.8	193,398		4.3	197,185		4.3
Hotels	122,600		2.7	97,016		2.1	117,838		2.6	128,199		2.8
Restaurants	121,025		2.6	112,547		2.5	113,375		2.5	115,667		2.5
Service stations and truck stops	104,611		2.3	107,834		2.4	112,999		2.5	100,293		2.2
Recreational	84,927		1.9	87,986		1.9	69,399		1.5	70,490		1.5
Automobile dealers	38,153		0.8	39,020		0.9
Other	206,376		4.5	213,102		4.7	195,361		4.3	204,926		4.5
Total other commercial real estate	1,363,238		29.7	1,358,515		29.9	1,309,878		28.8	1,361,810		29.6
Total commercial real estate	$	4,576,036	100.0	$	4,553,618	100.0	$	4,553,188	100.0	$	4,596,249	100.0

Commercial real estate loans represent ~~42.8%~~39.3% of total loans, and totaled $4.6 billion at March 31, ~~2018, increasing by $22.4~~2019, decreasing $43.1 million, or 0.9%, from December 31, ~~2017.~~2018.

The mix of properties securing the loans in our commercial real estate portfolio is balanced between owner-occupied and investor categories and is diverse in terms of type and geographic location, generally within the Company's markets. Approximately 43% of the commercial real estate portfolio, excluding multi-family and construction loans, is owner-occupied as of March 31, ~~2018.~~2019. Using outstanding loan balances, non-owner-occupied commercial real estate loans to total capital was ~~214%~~194% and construction loans to total capital was ~~32%~~35% as of March 31, ~~2018.~~2019. Non-owner-occupied (investor) commercial real estate is calculated in

5051

Table of Contents

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.

Consumer Loans

Consumer loans represent ~~18.8%~~20.7% of total loans, and totaled ~~$2.0~~$2.4 billion at March 31, ~~2018,~~2019, an increase of ~~$82.5~~$94.8 million, or ~~4.3%~~4.1%, from December 31, ~~2017.~~2018. Consumer loans are centrally underwritten using a credit scoring model developed by the Fair Isaac Corporation ("FICO"), which employs a risk-based system to determine the probability that a borrower may default. Underwriting standards for home equity loans are heavily influenced by statutory requirements, which include loan-to-value and affordability ratios, risk-based pricing strategies, and documentation requirements. The home equity category consists mainly of revolving lines of credit secured by junior liens on owner-occupied real estate. Loan-to-value ratios on home equity loans and 1-4 family mortgages are based on the current appraised value of the collateral. Repayment for these loans is dependent on the borrower's continued financial stability, and is more likely to be impacted by adverse personal circumstances.

5152

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 10

Loan Portfolio by Performing/~~Non-Performing~~Non-performing Status

(Dollar amounts in thousands)


	Accruing												Accruing
	PCI⁽¹⁾		Current		30-89 Days Past Due		90 Days Past Due		Non-accrual⁽²⁾		Total Loans		PCI⁽¹⁾		Current		30-89 Days Past Due		90 Days Past Due		Non-accrual⁽²⁾		Total Loans
As of March 31, 2018
As of March 31, 2019
Commercial and industrial	$	3,373	$	3,599,159	$	10,597	$	1,963	$	43,974	$	3,659,066	$	2,198	$	4,127,166	$	15,924	$	3,280	$	34,694	$	4,183,262
Agricultural	7,234		423,661		264		489		4,086		435,734		3,602		432,399		—		101		2,359		438,461
Commercial real estate:
Office, retail, and industrial	14,426		1,898,381		5,577		476		12,342		1,931,202		13,491		1,762,539		9,494		3,884		17,484		1,806,892
Multi-family	13,201		667,212		15,249		24		144		695,830		6,480		739,627		3,866		11		2,959		752,943
Construction	8,405		576,202		35		916		208		585,766		6,231		672,149		5,066		29		—		683,475
Other commercial real estate	59,820		1,295,183		4,083		64		4,088		1,363,238		50,736		1,252,002		3,918		251		2,971		1,309,878
Total commercial real estate	95,852		4,436,978		24,944		1,480		16,782		4,576,036		76,938		4,426,317		22,344		4,175		23,414		4,553,188
Total corporate loans	106,459		8,459,798		35,805		3,932		64,842		8,670,836		82,738		8,985,882		38,268		7,556		60,467		9,174,911
Home equity	2,656		870,443		2,611		44		5,780		881,534		1,911		851,352		2,930		39		5,836		862,068
1-4 family mortgages	17,775		774,625		1,977		132		4,393		798,902		16,475		1,064,674		1,213		—		3,902		1,086,264
Installment	1,056		321,741		2,180		525		—		325,502		938		440,618		3,353		851		—		445,760
Total consumer loans	21,487		1,966,809		6,768		701		10,173		2,005,938		19,324		2,356,644		7,496		890		9,738		2,394,092
Total loans	$	127,946	$	10,426,607	$	42,573	$	4,633	$	75,015	$	10,676,774	$	102,062	$	11,342,526	$	45,764	$	8,446	$	70,205	$	11,569,003
As of December 31, 2017
As of December 31, 2018
Commercial and industrial	$	5,450	$	3,458,049	$	24,005	$	1,830	$	40,580	$	3,529,914	$	1,175	$	4,076,842	$	8,347	$	422	$	33,507	$	4,120,293
Agricultural	7,203		423,007		280		177		219		430,886		3,282		425,041		940		101		1,564		430,928
Commercial real estate:
Office, retail, and industrial	14,575		1,950,564		2,776		345		11,560		1,979,820		16,556		1,785,561		8,209		4,081		6,510		1,820,917
Multi-family	14,071		657,878		3,117		20		377		675,463		13,663		745,739		1,487		189		3,107		764,185
Construction	8,778		530,264		198		371		209		539,820		4,838		640,936		3,419		—		144		649,337
Other commercial real estate	64,675		1,287,522		2,380		317		3,621		1,358,515		54,763		1,297,191		4,805		2,197		2,854		1,361,810
Total commercial real estate	102,099		4,426,228		8,471		1,053		15,767		4,553,618		89,820		4,469,427		17,920		6,467		12,615		4,596,249
Total corporate loans	114,752		8,307,284		32,756		3,060		56,566		8,514,418		94,277		8,971,310		27,207		6,990		47,686		9,147,470
Home equity	2,745		815,014		3,252		98		5,946		827,055		1,916		839,206		4,988		104		5,393		851,607
1-4 family mortgages	18,080		750,555		1,310		—		4,412		774,357		16,655		991,842		3,681		1,147		3,856		1,017,181
Installment	1,113		318,065		2,407		397		—		321,982		962		427,874		1,648		41		—		430,525
Total consumer loans	21,938		1,883,634		6,969		495		10,358		1,923,394		19,533		2,258,922		10,317		1,292		9,249		2,299,313
Total loans	$	136,690	$	10,190,918	$	39,725	$	3,555	$	66,924	$	10,437,812	$	113,810	$	11,230,232	$	37,524	$	8,282	$	56,935	$	11,446,783


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


⁽²⁾	Includes PCI loans of ~~$760,000~~$45,000 and ~~$763,000~~$58,000 as of March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively, which no longer have an accretable yield as estimates of expected future cash flows have decreased since the acquisition date due to credit deterioration.

5253

Table of Contents

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

Table 11

Non-Performing Assets and Past Due Loans

(Dollar amounts in thousands)


	As of															As of
	March 31, 2018			December 31, 2017			September 30, 2017			June 30, 2017			March 31, 2017			March 31, 2019			December 31, 2018			September 30, 2018			June 30, 2018			March 31, 2018
Non-accrual loans	$	75,015		$	66,924		$	65,176		$	79,196		$	54,294		$	70,205		$	56,935		$	64,766		$	53,475		$	75,015
90 days or more past due loans, still accruing interest⁽¹⁾	4,633			3,555			2,839			2,059			2,633			8,446			8,282			2,949			7,954			4,633
Total non-performing loans	79,648			70,479			68,015			81,255			56,927			78,651			65,217			67,715			61,429			79,648
Accruing TDRs	1,778			1,796			1,813			2,029			2,112			1,844			1,866			1,741			1,760			1,778
OREO	17,472			20,851			19,873			26,493			29,140			10,818			12,821			12,244			12,892			17,472
Total non-performing assets	$	98,898		$	93,126		$	89,701		$	109,777		$	88,179		$	91,313		$	79,904		$	81,700		$	76,081		$	98,898
30-89 days past due loans⁽¹⁾	$	42,573		$	39,725		$	28,868		$	19,081		$	23,641		$	45,764		$	37,524		$	46,257		$	39,171		$	42,573
Non-accrual loans to total loans	0.70		%	0.64		%	0.63		%	0.77		%	0.54		%	0.61		%	0.50		%	0.59		%	0.49		%	0.70		%
Non-performing loans to total loans	0.75		%	0.68		%	0.65		%	0.79		%	0.57		%	0.68		%	0.57		%	0.61		%	0.56		%	0.75		%
Non-performing assets to total loans plus OREO	0.92		%	0.89		%	0.86		%	1.07		%	0.87		%	0.79		%	0.70		%	0.74		%	0.70		%	0.92		%


⁽¹⁾	PCI loans with an accretable yield are considered current and are not included in past due loan totals.

Total non-performing assets represented ~~0.92%~~0.79% of total loans and OREO at March 31, ~~2018, up from 0.89%~~2019, compared to 0.70% and ~~0.87%~~0.92% at December 31, ~~2017~~2018 and March 31, ~~2017,~~2018, respectively, reflective of normal fluctuations that can occur on a quarterly basis. The decline in OREO compared to March 31, 2018 resulted from sales of OREO properties.

5354

Table of Contents

TDRs

Loan modifications may be performed at the request of an individual borrower and may include reductions in interest rates, changes in payments, and extensions of maturity dates. We occasionally restructure loans at other than market rates or terms to enable the borrower to work through financial difficulties for a period of time, and these restructured loans remain classified as TDRs for the remaining term of these loans.

Table 12

TDRs by Type

(Dollar amounts in thousands)

As of
March 31, 2018 December 31, 2017 March 31, 2017

Number
of Loans
Amount
Number
of Loans
Amount
Number
of Loans
Amount
Commercial and industrial 10
$ 17,090
11
$ 19,223
4
$ 1,200
Commercial real estate:
Office, retail, and industrial 4
2,336
4
4,236
2
864
Multi-family 3
714
3
723
3
745
Other commercial real estate 1
189
1
192
2
263
Total commercial real estate 8
3,239
8
5,151
7
1,872
Total corporate loans 18
20,329
19
24,374
11
3,072
Home equity 14
809
15
824
16
967
1-4 family mortgages 11
1,106
11
1,131
11
1,185
Total consumer loans 25
1,915
26
1,955
27
2,152
Total TDRs 43
$ 22,244
45
$ 26,329
38
$ 5,224
Accruing TDRs 13
$ 1,778
14
$ 1,796
17
$ 2,112
Non-accrual TDRs 30
20,466
31
24,533
21
3,112
Total TDRs 43
$ 22,244
45

$ 26,329
38
$ 5,224
Year-to-date charge-offs on TDRs $ 1,309
$ 6,345
$ 112
Specific reserves related to TDRs 2,374
1,977
32

As of March 31, 2018, TDRs totaled $22.2 million, decreasing by $4.1 million from December 31, 2017. The increase from $5.2 million at March 31, 2017 was driven primarily by the extension of two non-accrual credits during the third quarter of 2017.



	As of
	March 31, 2019			December 31, 2018			March 31, 2018
	Number of Loans	Amount		Number of Loans	Amount		Number of Loans	Amount
Commercial and industrial	5	$	9,070	6	$	6,240	10	$	17,090
Commercial real estate:
Office, retail, and industrial	—	—		—	—		4	2,336
Multi-family	2	552		2	557		3	714
Other commercial real estate	1	179		1	181		1	189
Total commercial real estate	3	731		3	738		8	3,239
Total corporate loans	8	9,801		9	6,978		18	20,329
Home equity	9	378		11	440		14	809
1-4 family mortgages	11	1,040		11	1,060		11	1,106
Total consumer loans	20	1,418		22	1,500		25	1,915
Total TDRs	28	$	11,219	31	$	8,478	43	$	22,244
Accruing TDRs	15	$	1,844	15	$	1,866	13	$	1,778
Non-accrual TDRs	13	9,375		16	6,612		30	20,466
Total TDRs	28	$	11,219	31	$	8,478	43	$	22,244
Year-to-date charge-offs on TDRs		$	158		$	3,925		$	1,309
Specific reserves related to TDRs		173			—			2,374

5455

Table of Contents

Corporate Performing Potential Problem Loans

Corporate performing potential problem loans consist of special mention loans and substandard loans, excluding accruing TDRs. These loans are performing in accordance with their contractual terms, but we have concerns about the ability of the borrower to continue to comply with loan terms due to the borrower's operating or financial difficulties.

Table 13

Corporate Performing Potential Problem Loans

(Dollar amounts in thousands)


	As of March 31, 2018									As of December 31, 2017									As of March 31, 2019									As of December 31, 2018
	Special Mention⁽¹⁾			Substandard⁽²⁾			Total⁽³⁾			Special Mention⁽¹⁾			Substandard⁽²⁾			Total⁽³⁾			Special Mention⁽¹⁾			Substandard⁽²⁾			Total⁽³⁾			Special Mention⁽¹⁾			Substandard⁽²⁾			Total⁽³⁾
Commercial and industrial	$	95,259		$	14,444		$	109,703		$	70,863		$	30,074		$	100,937		$	57,746		$	104,931		$	162,677		$	74,878		$	59,597		$	134,475
Agricultural	7,756			6,248			14,004			10,989			5,732			16,721			9,119			16,178			25,297			10,070			11,752			21,822
Commercial real estate	78,975			61,270			140,245			72,749			69,228			141,977			102,609			93,660			196,269			109,232			74,886			184,118
Total corporate performing potential problem loans⁽⁴⁾	$	181,990		$	81,962		$	263,952		$	154,601		$	105,034		$	259,635		$	169,474		$	214,769		$	384,243		$	194,180		$	146,235		$	340,415
Corporate performing potential problem loans to corporate loans	2.10		%	0.95		%	3.04		%	1.82		%	1.23		%	3.05		%	1.85		%	2.34		%	4.19		%	2.12		%	1.60		%	3.72		%
Corporate PCI performing potential problem loans included in the totals above	$	17,422		$	22,775		$	40,197		$	17,685		$	26,635		$	44,320		$	4,768		$	27,182		$	31,950		$	14,650		$	20,638		$	35,288


⁽¹⁾	Loans categorized as special mention exhibit potential weaknesses that require the close attention of management since these potential weaknesses may result in the deterioration of repayment prospects in the future.


⁽²⁾	Loans categorized as substandard exhibit well-defined weaknesses that may jeopardize the liquidation of the debt. These loans continue to accrue interest because they are well-secured and collection of principal and interest is expected within a reasonable time.


⁽³⁾	Total corporate performing potential problem loans excludes accruing TDRs of ~~$651,000~~$624,000 as of March 31, ~~2018~~2019 and ~~$657,000~~$630,000 as of December 31, ~~2017.~~2018.


⁽⁴⁾	Includes corporate PCI performing potential problem loans.

Corporate performing potential problem loans to corporate loans ~~of 3.04%~~was 4.19% at March 31, ~~2018 were consistent with~~2019, increasing from 3.72% at December 31, ~~2017.~~2018. The increase resulted primarily from higher levels of commercial and industrial and commercial real estate loans classified as substandard. Management has specific monitoring and remediation plans associated with these loans.

OREO

OREO consists of properties acquired as the result of borrower defaults on loans.

Table 14

OREO by Type

(Dollar amounts in thousands)


	As of						As of
	March 31, 2018		December 31, 2017		March 31, 2017		March 31, 2019		December 31, 2018		March 31, 2018
Single-family homes	$	1,173	$	837	$	1,768	$	2,241	$	3,337	$	1,173
Land parcels:
Raw land	850		850		1,025		—		—		850
Commercial lots	4,657		8,698		10,638		2,654		2,310		4,657
Single-family lots	2,135		2,150		2,232		1,543		1,962		2,135
Total land parcels	7,642		11,698		13,895		4,197		4,272		7,642
Multi-family units	225		48		272		—		—		225
Commercial properties	8,432		8,268		13,205		4,380		5,212		8,432
Total OREO	$	17,472	$	20,851	$	29,140	$	10,818	$	12,821	$	17,472

5556

Table of Contents

OREO Activity

A rollforward of OREO balances for the quarters ended March 31, ~~2018~~2019 and ~~2017~~2018 is presented in the following table.

Table 15

OREO Rollforward

(Dollar amounts in thousands)


	Quarters Ended March 31,						Quarters Ended March 31,
	2018			2017			2019			2018
Beginning balance	$	20,851		$	26,083		$	12,821		$	20,851
Transfers from loans	937			683			—			937
Acquisitions	—			8,427			—			—
Proceeds from sales	(3,876		)	(5,364		)	(2,795		)	(3,876		)
Losses on sales of OREO	(20		)	(156		)
Gains (losses) on sales of OREO							107			(20		)
OREO valuation adjustments	(420		)	(533		)	685			(420		)
Ending balance	$	17,472		$	29,140		$	10,818		$	17,472

Allowance for Credit Losses

Methodology for the Allowance for Credit Losses

The allowance for credit losses is comprised of the allowance for loan losses and the reserve for unfunded commitments and is maintained by management at a level believed adequate to absorb estimated losses inherent in the existing loan portfolio. Determination of the allowance for credit losses is inherently subjective since it requires significant estimates and management judgment, including the amounts and timing of expected future cash flows on impaired loans, estimated losses on pools of homogeneous loans, ~~and~~ consideration of current economic ~~trends.~~trends, and other factors.

Acquired loans are recorded at fair value, which incorporates credit risk, at the date of acquisition. No allowance for credit losses is recorded on the acquisition date for such loans. As the acquisition adjustment is accreted into income over future periods, an allowance for credit losses is established as necessary to reflect credit deterioration. In addition, certain acquired loans that have renewed subsequent to their respective acquisition dates are no longer classified as acquired loans. Instead, they are included with our loan population that is allocated an allowance in accordance with our allowance for loan losses methodology.

While management utilizes its best judgment and information available, the ultimate adequacy of the allowance for credit losses depends on a variety of factors beyond the Company's control, including the performance of its loan portfolio, the economy, changes in interest rates and property values, and the interpretation of loan risk ratings by regulatory authorities. Management believes that the allowance for credit losses is an appropriate estimate of credit losses inherent in the loan portfolio as of March 31, ~~2018.~~2019.

The accounting policy for the allowance for credit losses is discussed in Note 1 of "Notes to the Condensed Consolidated Financial Statements" in Part I, Item 1 of this Form 10-Q.

5657

Table of Contents

An allowance for credit losses is established on loans originated by the Bank, acquired loans, and covered loans. Additional discussion regarding acquired and covered loans can be found in ~~Note~~Notes 1 and 6 of "Notes to the Condensed Consolidated Financial Statements" in Part I, Item 1 of this Form 10-Q. The following table provides additional details related to acquired loans, the allowance for credit losses as related to acquired loans, and the remaining acquisition adjustment associated with acquired loans as of March 31, ~~2018~~2019 and December 31, ~~2017.~~2018.

Table 16

Allowance for Credit Losses and Acquisition Adjustment

(Dollar amounts in thousands)


	Loans, Excluding Acquired Loans			Acquired Loans⁽¹⁾			Total			Loans, Excluding Acquired Loans			Acquired Loans⁽¹⁾			Total
Quarter Ended March 31, 2018
Three months ended March 31, 2019
Beginning balance	$	94,123		$	2,606		$	96,729		$	102,222		$	1,197		$	103,419
Net charge-offs	(15,806		)	(250		)	(16,056		)	(9,021		)	(63		)	(9,084		)
Provision for loan losses and other expense	15,215			(34		)	15,181			10,607			(163		)	10,444
Ending balance	$	93,532		$	2,322		$	95,854		$	103,808		$	971		$	104,779
As of March 31, 2018
As of March 31, 2019
Total loans	$	9,219,842		$	1,456,932		$	10,676,774		$	10,408,534		$	1,160,469		$	11,569,003
Remaining acquisition adjustment⁽²⁾	N/A			70,651			70,651			N/A			70,058			70,058
Allowance for credit losses to total loans⁽³⁾	1.01		%	0.16		%	0.90		%	1.00		%	0.08		%	0.91		%
Remaining acquisition adjustment to acquired loans	N/A			4.85		%	N/A			N/A			6.04		%	N/A
As of December 31, 2017
As of December 31, 2018
Total loans	$	8,822,560		$	1,615,252		$	10,437,812		$	10,114,113		$	1,332,670		$	11,446,783
Remaining acquisition adjustment⁽²⁾	N/A			74,677			74,677			N/A			76,496			76,496
Allowance for credit losses to total loans⁽³⁾	1.07		%	0.16		%	0.93		%	1.01		%	0.09		%	0.90		%
Remaining acquisition adjustment to acquired loans	N/A			4.62		%	N/A			N/A			5.74		%	N/A

N/A -– Not applicable.


⁽¹⁾	These amounts and ratios relate to the loans acquired in completed acquisitions.


⁽²⁾	The remaining acquisition adjustment consists of ~~$41.2~~$41.4 million and ~~$29.5~~$28.6 million relating to PCI and non-purchased credit impaired ("Non-PCI") loans, respectively, as of March 31, ~~2018,~~2019, and ~~$43.5~~$45.4 million and ~~$31.2~~$31.1 million relating to PCI and Non-PCI loans, respectively, as of December 31, ~~2017.~~2018.


⁽³⁾	The allowance for credit losses to total loans, excluding acquired loans is a non-GAAP financial measure. For a discussion of non-GAAP financial measures, see the section of this Item 2 titled "Non-GAAP Financial Information and Reconciliations."

Excluding acquired loans, the allowance for credit losses to total loans was ~~1.01%~~1.00% as of March 31, ~~2018.~~2019. The acquisition adjustment decreased ~~$4.0~~by $6.4 million during the first quarter of ~~2018,~~2019, driven primarily by acquired loan accretion, resulting in a remaining acquisition adjustment as a percent of acquired loans of ~~4.85%~~6.04%. Acquired loans that are renewed are no longer classified as acquired loans. These loans totaled ~~$404.2~~$483.1 million and ~~$366.0~~$458.0 million as of March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively, and are included in loans, excluding acquired loans, ~~in the table above~~ and allocated an allowance in accordance with our allowance for loan losses methodology. In addition, there is an allowance for credit losses of ~~$2.3~~$1.0 million on acquired ~~loans.~~loans as of March 31, 2019.

5758

Table of Contents

Table 17

Allowance for Credit Losses and

Summary of Credit Loss Experience

(Dollar amounts in thousands)


	Quarters Ended															Quarters Ended
	March 31, 2018			December 31, 2017			September 30, 2017			June 30, 2017			March 31, 2017			March 31, 2019			December 31, 2018			September 30, 2018			June 30, 2018			March 31, 2018
Change in allowance for credit losses
Beginning balance	$	96,729		$	95,814		$	93,371		$	89,163		$	87,083		$	103,419		$	100,925		$	97,691		$	95,854		$	96,729
Loan charge-offs:
Commercial, industrial, and agricultural	14,670			6,919			8,935			2,957			4,074			6,451			6,868			6,277			8,662			14,670
Office, retail, and industrial	461			49			14			—			127			628			761			759			305			461
Multi-family	—			—			—			—			—			340			—			1			4			—
Construction	—			—			(6		)	39			5			6			—			1			—			—
Other commercial real estate	69			34			6			307			408			210			163			177			1			69
Consumer	1,885			2,118			1,617			1,556			1,664			3,142			2,535			2,049			2,337			1,885
Total loan charge-offs	17,085			9,120			10,566			4,859			6,278			10,777			10,327			9,264			11,309			17,085
Recoveries of loan charge-offs:
Commercial, industrial, and agricultural	538			1,386			698			400			1,666			1,301			1,239			416			753			538
Office, retail, and industrial	97			127			1,825			8			975			10			48			163			26			97
Multi-family	—			3			2			6			28			1			3			—			—			—
Construction	13			12			19			12			227			6			99			5			8			13
Other commercial real estate	39			39			25			79			101			21			980			154			359			39
Consumer	342			444			331			323			443			354			441			512			386			342
Total recoveries of loan charge-offs	1,029			2,011			2,900			828			3,440			1,693			2,810			1,250			1,532			1,029
Net loan charge-offs	16,056			7,109			7,666			4,031			2,838			9,084			7,517			8,014			9,777			16,056
Provision for loan losses	15,181			8,024			10,109			8,239			4,918			10,444			9,811			11,248			11,614			15,181
Increase in reserve for unfunded commitments ⁽¹⁾																—			200			—			—			—
Total provision for loan losses and other expense																10,444			10,011			11,248			11,614			15,181
Ending balance	$	95,854		$	96,729		$	95,814		$	93,371		$	89,163		$	104,779		$	103,419		$	100,925		$	97,691		$	95,854
Allowance for credit losses
Allowance for loan losses	$	94,854		$	95,728		$	94,814		$	92,371		$	88,163		$	103,579		$	102,219		$	99,925		$	96,691		$	94,854
Reserve for unfunded commitments	1,000			1,000			1,000			1,000			1,000			1,200			1,200			1,000			1,000			1,000
Total allowance for credit losses	$	95,854		$	96,728		$	95,814		$	93,371		$	89,163		$	104,779		$	103,419		$	100,925		$	97,691		$	95,854
Allowance for credit losses to loans⁽¹⁾	0.90		%	0.93		%	0.92		%	0.91		%	0.89		%	0.91		%	0.90		%	0.91		%	0.90		%	0.90		%
Allowance for credit losses to loans, excluding acquired loans⁽²⁾	1.01		%	1.07		%	1.09		%	1.10		%	1.11		%	1.00		%	1.01		%	1.01		%	1.00		%	1.01		%
Allowance for credit losses to non-accrual loans	127.78		%	144.54		%	147.01		%	117.90		%	164.22		%	149.25		%	181.64		%	155.83		%	182.69		%	127.78		%
Allowance for credit losses to non-performing loans	120.35		%	137.25		%	140.87		%	114.91		%	156.63		%	133.22		%	158.58		%	149.04		%	159.03		%	120.35		%
Average loans	$	10,496,089		$	10,380,689		$	10,273,630		$	10,059,968		$	9,916,281		$	11,456,267		$	10,921,795		$	10,978,336		$	10,785,341		$	10,496,089
Net loan charge-offs to average loans, annualized	0.62		%	0.27		%	0.30		%	0.16		%	0.12		%	0.32		%	0.38		%	0.29		%	0.36		%	0.62		%

⁽¹⁾

This ratio includes acquired loans that are recorded at fair value through an acquisition adjustment, which incorporates credit risk as of the acquisition date with no allowance for credit losses being established at that time. As the acquisition adjustment is accreted into income over future periods, an allowance for credit losses is established as necessary to reflect credit deterioration. See the Allowance for Credit Losses and Acquisition Adjustment table above for further discussion of the allowance for acquired loan losses and the related acquisition adjustment.


⁽²⁾	~~The allowance for credit losses to total loans, excluding acquired loans~~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."

Activity in the Allowance for Credit Losses

The allowance for credit losses was ~~$95.9~~$104.8 million as of March 31, ~~2018~~2019 and represents ~~0.90%~~0.91% of total loans compared to ~~0.93%~~0.90% at December 31, ~~2017.~~

The provision for loan losses was $15.2 million for the quarter ended March 31, 2018, up from $8.0 million for the quarter ended December 31, 2017. The increase compared to the quarter ended December 31, 2017 resulted primarily from higher levels of net charge-offs.2018.

5859

Table of Contents

The provision for loan losses was $10.4 million for the quarter ended March 31, 2019, compared to $9.8 million and $15.2 million for the quarters ended December 31, 2018 and March 31, 2018, respectively. The first quarter of 2018 reflected higher levels of net charge-offs.

Net loan charge-offs to average loans, annualized, were ~~0.62%~~0.32%, or ~~$16.1~~$9.1 million, for the first quarter of ~~2018, up~~2019, down from ~~0.27%~~0.38% and ~~0.12%~~0.62% for the fourth and first quarters of ~~2017,~~2018, respectively. The ~~increase in net loan charge-offs compared to both prior periods resulted largely from~~first quarter of 2018 was impacted by losses on two corporate relationships based upon circumstances unique to these borrowers. ~~Included within net charge-offs for the first quarter of 2017 were $3.4 million in recoveries which related to three corporate relationships that were charged-off in prior periods.~~

FUNDING AND LIQUIDITY MANAGEMENT

The following table provides a comparison of average funding sources. We believe that average balances, rather than period-end balances, are more meaningful in analyzing funding sources because of the normal fluctuations that may occur on a daily or monthly basis within funding categories.

Table 18

Funding Sources -– Average Balances

(Dollar amounts in thousands)

Quarters Ended March 31, 2018 % Change From
March 31,
2018 December 31,
2017 March 31,
2017 December 31,
2017 March 31,
2017
Demand deposits $ 3,466,832
$ 3,611,811
$ 3,355,674
(4.0 ) 3.3
Savings deposits 2,015,679
2,017,489
2,029,631
(0.1 ) (0.7 )
NOW accounts 1,992,672
1,992,150
1,916,816
—
4.0
Money market accounts 1,814,057
1,938,195
1,890,703
(6.4 ) (4.1 )
Core deposits 9,289,240
9,559,645
9,192,824
(2.8 ) 1.0
Time deposits 1,726,082
1,613,681
1,473,882
7.0
17.1
Brokered deposits 9,073
6,077
41,715
49.3
(78.3 )
Total time deposits 1,735,155
1,619,758
1,515,597
7.1
14.5
Total deposits 11,024,395
11,179,403
10,708,421
(1.4 ) 3.0
Securities sold under agreements to
  repurchase
119,852
119,797
126,202
—
(5.0 )
Federal funds purchased 11,389
—
—
N/M
N/M
FHLB advances 727,056
434,837
607,889
67.2
19.6
Total borrowed funds 858,297
554,634
734,091
54.8
16.9
Senior and subordinated debt 195,243
195,102
194,677
0.1
0.3
Total funding sources $ 12,077,935
$ 11,929,139
$ 11,637,189
1.2
3.8
Average interest rate paid on
  borrowed funds
1.64 % 1.62 % 1.21 %
Weighted-average maturity of FHLB
  advances
0.9 months
1.0 months
1.3 months

Weighted-average interest rate of
  FHLB advances
1.74 % 1.26 % 0.74 %

~~N/M – Not meaningful.~~



	Quarters Ended									March 31, 2019 % Change From
	March 31, 2019			December 31, 2018			March 31, 2018			December 31, 2018		March 31, 2018
Demand deposits	$	3,587,480		$	3,685,806		$	3,466,832		(2.7	)	3.5
Savings deposits	2,037,831			2,044,312			2,015,679			(0.3	)	1.1
NOW accounts	2,083,366			2,128,722			1,992,672			(2.1	)	4.6
Money market accounts	1,809,234			1,831,311			1,814,057			(1.2	)	(0.3	)
Core deposits	9,517,911			9,690,151			9,289,240			(1.8	)	2.5
Time deposits	2,412,052			2,190,251			1,726,082			10.1		39.7
Brokered deposits	235,264			121,202			9,073			94.1		2,493.0
Total time deposits	2,647,316			2,311,453			1,735,155			14.5		52.6
Total deposits	12,165,227			12,001,604			11,024,395			1.4		10.3
Securities sold under agreements to repurchase	112,717			118,749			119,852			(5.1	)	(6.0	)
Federal funds purchased	722			9,022			11,389			(92.0	)	100.0
FHLB advances	764,556			903,478			727,056			(15.4	)	5.2
Total borrowed funds	877,995			1,031,249			858,297			(14.9	)	2.3
Senior and subordinated debt	203,899			204,030			195,243			(0.1	)	4.4
Total funding sources	$	13,247,121		$	13,236,883		$	12,077,935		0.1		9.7
Average interest rate paid on borrowed funds	1.64		%	1.72		%	1.64		%
Weighted-average maturity of FHLB advances	1.2 months			1.2 months			0.9 months
Weighted-average interest rate of FHLB advances	2.60		%	2.53		%	1.74		%

Total average funding sources for the first quarter of ~~2018 increased by $148.8 million, or 1.2%, compared to~~2019 were consistent with the fourth quarter of ~~2017~~2018 and ~~$440.7 million,~~increased by $1.2 billion, or ~~3.8%~~9.7%, compared to the first quarter of ~~2017.~~2018. The ~~increase~~decrease in average core deposits from the fourth quarter of 2018 resulted primarily from the normal seasonal decline in commercial and municipal deposits. The rise in total average deposits compared to ~~both prior periods resulted from an increase~~the first quarter of 2018 was driven by deposits acquired in ~~FHLB advances as related interest rate swaps became effective~~the Northern States acquisition and ~~a rise in time deposits due to~~ the continued success of ~~promotions which started in 2017.~~time deposit marketing initiatives.

5960

Table of Contents

Table 19

Borrowed Funds

(Dollar amounts in thousands)


	As of March 31, 2018			As of March 31, 2017			March 31, 2019			March 31, 2018
	Amount		Weighted- Average Rate (%)	Amount		Weighted- Average Rate (%)	Amount		Weighted- Average Rate (%)	Amount		Weighted- Average Rate (%)
At period-end:
Securities sold under agreements to repurchase	$	120,688	0.07	$	132,923	0.06	$	118,852	0.09	$	120,688	0.07
FHLB advances	830,000		1.74	415,000		0.74	855,000		2.60	830,000		1.74
Total borrowed funds	$	950,688	1.53	$	547,923	0.58	$	973,852	2.29	$	950,688	1.53
Average for the year-to-date period:
Securities sold under agreements to repurchase	$	119,852	0.06	$	126,202	0.05	$	112,717	0.08	$	119,852	0.06
Federal funds purchased	11,389		1.60	—		—	722		2.25	11,389		1.60
FHLB advances	727,056		1.90	607,889		1.45	764,556		1.87	727,056		1.90
Total borrowed funds	$	858,297	1.64	$	734,091	1.21	$	877,995	1.64	$	858,297	1.64
Maximum amount outstanding at the end of any day during the period:	Maximum amount outstanding at the end of any day during the period:						Maximum amount outstanding at the end of any day during the period:
Securities sold under agreements to repurchase	$	128,553		$	140,764		$	122,441		$	128,553
Federal funds purchased	65,000			—			65,000			65,000
FHLB advances	930,000			940,000			885,000			930,000

Average borrowed funds totaled ~~$858.3~~$878.0 million for the first quarter of ~~2018,~~2019, increasing by ~~$124.2~~$19.7 million compared to the same period in ~~2017.~~2018. This increase was due primarily to higher levels of FHLB ~~advances during the first quarter of 2017.~~advances. The weighted-average rate on FHLB advances for both periods presented was impacted by the hedging of ~~$510.0~~$740.0 million and ~~$415.0~~$510.0 million in FHLB advances as of March 31, ~~2018~~2019 and ~~2017,~~2018, respectively, using interest rate swaps through which the Company receives variable amounts and pays fixed amounts. The weighted-average interest rate paid on these interest rate swaps was ~~2.19%~~1.88% and ~~2.17%~~2.19% as of March 31, ~~2018~~2019 and ~~2017,~~2018, respectively. For a detailed discussion of interest rate swaps, see Note 911 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, 2019. 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, 2019, no amount was outstanding under the facility.

Securities sold under agreements to repurchase generally mature within 1 to 90 days from the transaction date.

MANAGEMENT OF CAPITAL

Capital Measurements

A strong capital structure is required under applicable banking regulations and is crucial in maintaining investor confidence, accessing capital markets, and enabling us to take advantage of future growth opportunities. Our capital policy requires that the Company and the Bank maintain capital ratios in excess of the minimum regulatory guidelines. It serves as an internal discipline in analyzing business risks and internal growth opportunities and sets targeted levels of return on equity. Under regulatory capital adequacy guidelines, the Company and the Bank are subject to various capital requirements set and administered by the federal banking agencies. ~~On January 1, 2015, the~~The Company and the Bank ~~became~~are subject to the Basel III Capital rules, a ~~new~~ comprehensive capital framework for U.S. banking organizations published by the Federal Reserve. These rules are discussed in the "Supervision and Regulation" section in Item 1, "Business" in the Company's ~~2017~~2018 10-K. In addition, financial institutions, such as the Company and the Bank, with average total consolidated assets greater than $10 billion are required by the Dodd-Frank Act to conduct an annual company-run stress test of capital. The Company submitted its first required stress test report for the July 31, 2017 reporting date and the Bank will become subject to these stress test requirements starting with the July 31, 2018 reporting date.

The following table presents our consolidated measures of capital as of the dates presented and the capital guidelines established by the Federal Reserve for the Bank to be categorized as "well-capitalized." We manage our capital levels for both the Company and the Bank to consistently maintain these measurements in excess of the Federal Reserve's minimum levels to be considered "well-capitalized," which is the highest capital category established. All regulatory mandated ratios for characterization as "well-capitalized" were exceeded as of March 31, ~~2018~~2019 and December 31, ~~2017.~~2018.

6061

Table of Contents

The tangible common equity ratios presented in the table below are capital adequacy metrics used and relied on by investors and industry analysts; however, they are non-GAAP financial measures. For a discussion of non-GAAP financial measures, see the section of this Item 2 titled "Non-GAAP Financial Information and Reconciliations."

Table 20

Capital Measurements

(Dollar amounts in thousands)


					As of March 31, 2018													As of March 31, 2019
	As of				Regulatory Minimum For Well- Capitalized								As of					Regulatory Minimum For Well- Capitalized
	March 31, 2018		December 31, 2017				Excess Over Required Minimums					March 31, 2019			December 31, 2018			Regulatory Minimum For Well- Capitalized		Excess Over Required Minimums
Bank regulatory capital ratios					Regulatory Minimum For Well- Capitalized
Total capital to risk-weighted assets	10.82	%	10.95	%	10.00	%		8	%	$	99,042		11.58	%		11.39	%	10.00	%		16	%	$	207,046
Tier 1 capital to risk-weighted assets	10.03	%	10.13	%	8.00	%		25	%	$	245,130		10.78	%		10.58	%	8.00	%		35	%	$	364,076
CET1 to risk-weighted assets	10.03	%	10.13	%	6.50	%		54	%	$	426,586		10.78	%		10.58	%	6.50	%		66	%	$	560,432
Tier 1 capital to average assets	9.03	%	9.10	%	5.00	%		81	%	$	540,972		9.50	%		9.41	%	5.00	%		90	%	$	668,734
Company regulatory capital ratios
Total capital to risk-weighted assets	12.07	%	12.15	%	N/A			N/A		N/A			12.91	%		12.62	%	N/A			N/A		N/A
Tier 1 capital to risk-weighted assets	10.07	%	10.10	%	N/A			N/A		N/A			10.52	%		10.20	%	N/A			N/A		N/A
CET1 to risk-weighted assets	9.65	%	9.68	%	N/A			N/A		N/A			10.52	%		10.20	%	N/A			N/A		N/A
Tier 1 capital to average assets	9.07	%	8.99	%	N/A			N/A		N/A			9.28	%		8.90	%	N/A			N/A		N/A
Company tangible common equity ratios⁽¹⁾⁽²⁾
Tangible common equity to tangible assets	8.18	%	8.33	%	N/A			N/A		N/A			9.00	%		8.59	%	N/A			N/A		N/A
Tangible common equity, excluding accumulated other comprehensive loss, to tangible assets	8.60	%	8.58	%	N/A			N/A		N/A			9.21	%		8.95	%	N/A			N/A		N/A
Tangible common equity to risk-weighted assets	9.18	%	9.31	%	N/A			N/A		N/A			10.29	%		9.81	%	N/A			N/A		N/A

N/A -– Not applicable.


⁽¹⁾	Ratios are not subject to formal Federal Reserve regulatory guidance.


⁽²⁾	Tangible common equity ratios are non-GAAP financial measures. For a discussion of non-GAAP financial measures, see the section of this Item 2 titled "Non-GAAP Financial Information and Reconciliations."

~~Overall,~~The increase in the Company's regulatory capital ratios ~~decreased~~ compared to December 31, ~~2017, due~~2018 resulted primarily tofrom strong earnings and the approximately 25 basis point impact, or $47.3 million, of deferred gains, net of tax, which resulted from the adoption of lease accounting guidance at the beginning of the first quarter of 2019. These increases were partially offset by the Northern Oak acquisition and the impact of loan growth and securities purchases on risk-weighted ~~assets and the nearly 10 basis point impact of the phase-in of certain provisions related to regulatory capital ratio calculations, substantially offset by an increase in retained earnings.~~assets.

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

Dividends

The Company's Board of Directors approved a quarterly cash dividend of ~~$0.11~~$0.12 per common share during the first quarter of ~~2018,~~2019, which isfollows a ~~10%~~dividend increase from $0.11 to $0.12 per common share during the fourth quarter of ~~2017 and will represent~~2018. This dividend represents the ~~141~~145^stth consecutive cash dividend paid by the Company since its inception in 1983.

Stock Repurchase Program

6162

Table of Contents

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, allowance for credit losses to loans, excluding ~~the impact of~~ acquired ~~loan accretion,~~loans, return on average common equity, adjusted, tangible common equity to tangible assets, tangible common equity, excluding accumulated other comprehensive ~~loss,~~income ("AOCI"), to tangible assets, tangible common equity to risk-weighted assets, return on average tangible common equity, ~~adjusted,~~and return on average tangible common equity, ~~return on average tangible common equity, adjusted, and allowance for credit losses to loans, excluding acquired loans.~~adjusted.

The Company presents EPS, the 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 acquisition and integration related expenses ~~(first quarter of 2017).~~associated with completed and pending acquisitions and Delivering Excellence implementation costs. Management believes excluding these transactions from EPS, the efficiency ratio, return on average assets, return on average common equity, and return on average tangible common equity ~~are~~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 ~~facilitates~~may facilitate better comparability between periods. Management believes that excluding acquisition and integration related expenses from these metrics ismay be useful to the Company, as well as analysts and investors, since these expenses can vary significantly based on the size, type, and structure of each acquisition. Additionally, management believes excluding these transactions from these metrics ~~enhances~~may enhance comparability for peer comparison purposes.

The Company presents noninterest ~~income, excluding the accounting reclassification and Durbin and noninterest~~ expense, ~~excluding the accounting reclassification and~~adjusted, which excludes acquisition and integration related ~~expenses.~~expenses and Delivering Excellence implementation costs. Management believes that excluding these items from noninterest ~~income and noninterest~~ expense ismay be useful in assessing the ~~Company’s~~Company's underlying operational performance as these items either do not pertain to its core business operations or their exclusion ~~facilitates~~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~~assets. Interest income and ~~assumes a 35%~~yields on tax-exempt securities and loans are presented using the current federal income tax ~~rate.~~rate of 21%. Management believes that it is standard practice in the banking industry to present net interest income and net interest margin on a fully tax-equivalent basis and that it ~~enhances~~may enhance comparability for peer comparison purposes. In addition, management believes that ~~the~~presenting tax-equivalent net interest margin, ~~excluding the impact of acquired loan accretion, enhances~~adjusted, may enhance comparability for peer comparison purposes and ismay be useful to the Company, as well as analysts and investors, since acquired loan accretion income may fluctuate based on the size of each acquisition, as well as from period to period.

In management's view, tangible common equity measures are capital adequacy metrics that may be meaningful to the Company, as well as analysts and investors, in assessing the Company's use of equity and in facilitating comparisons with peers. These non-GAAP measures are valuable indicators of a financial institution's capital strength since they eliminate intangible assets from stockholders' equity and retain the effect of accumulated other comprehensive loss in stockholders' equity.

The Company presents the allowance for credit losses to total loans, excluding acquired loans. Management believes excluding acquired loans ismay be useful as it ~~facilitates~~may facilitate better comparability between periods as these loans are recorded at fair value, which incorporates credit risk, at the date of acquisition. No allowance for credit losses is recorded on the acquisition date. As the acquisition adjustment is accreted into income over future periods, an allowance for credit losses is established as necessary to reflect credit deterioration. Additionally, management believes excluding these transactions from these metrics ~~enhances~~may enhance comparability for peer comparison purposes. See Table 16 in the section of this Item 2 titled "Loan Portfolio and Credit Quality" for details on the calculation of this measure.

Although intended to enhance investors' understanding of the Company's business and performance, these non-GAAP financial measures should not be considered an alternative to GAAP. 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.

6263

Table of Contents

Non-GAAP Reconciliations

(Amounts in thousands, except per share data)


		Quarters Ended March 31,							Quarters Ended March 31,
		2018			2017				2019			2018
Earnings Per Share
EPS
Net income		$	33,510		$	22,855			$	46,058		$	33,510
Net income applicable to non-vested restricted shares		(311		)	(234		)		(403		)	(311		)
Net income applicable to common shares		33,199			22,621				45,655			33,199
Adjustments to net income:
Acquisition and integration related expenses		—			18,565				3,691			—
Tax effect of acquisition and integration related expenses		—			(7,426		)		(923		)	—
Delivering Excellence implementation costs									258			—
Tax effect of Delivering Excellence implementation costs									(65		)	—
Total adjustments to net income, net of tax		—			11,139				2,961			—
Net income applicable to common shares, adjusted⁽¹⁾		$	33,199		$	33,760
Net income applicable to common shares, adjusted									$	48,616		$	33,199
Weighted-average common shares outstanding:	Weighted-average common shares outstanding:							Weighted-average common shares outstanding:
Weighted-average common shares outstanding (basic)		101,922			100,411				105,770			101,922
Dilutive effect of common stock equivalents		16			21				—			16
Weighted-average diluted common shares outstanding		101,938			100,432				105,770			101,938
Basic EPS		$	0.33		$	0.23			$	0.43		$	0.33
Diluted EPS		$	0.33		$	0.23			$	0.43		$	0.33
Diluted EPS, adjusted⁽¹⁾		$	0.33		$	0.34
Diluted EPS, adjusted									$	0.46		$	0.33
Return on Average Assets	Return on Average Assets							Return on Average Assets
Net income		$	33,510		$	22,855			$	46,058		$	33,510
Total adjustments to net income, net of tax		—			11,139
Net income, adjusted⁽¹⁾		$	33,510		$	33,994
Total adjustments to net income, net of tax⁽¹⁾									2,961			—
Net income, adjusted									$	49,019		$	33,510
Average assets		$	14,187,053		$	13,673,125			$	15,667,839		$	14,187,053
Return on average assets⁽³⁾		0.96		%	0.68		%
Return on average assets, adjusted⁽¹⁾⁽³⁾		0.96		%	1.01		%
Return on Average Common and Tangible Common Equity
Net income applicable to common shares		$	33,199		$	22,621
Intangibles amortization		1,802			1,965
Tax effect of intangibles amortization		(721		)	(786		)
Net income applicable to common shares, excluding intangibles amortization		34,280			23,800
Total adjustments to net income, net of tax		—			11,139
Net income applicable to common shares, excluding intangibles amortization, adjusted⁽¹⁾		$	34,280		$	34,939
Average stockholders' common equity		$	1,873,419		$	1,763,538
Less: average intangible assets		(753,870		)	(750,589		)
Average tangible common equity		$	1,119,549		$	(1,012,949	)
Return on average common equity⁽³⁾		7.19		%	5.20		%
Return on average common equity, adjusted⁽³⁾		7.19		%	7.76		%
Return on average tangible common equity⁽³⁾		12.50		%	9.53		%
Return on average tangible common equity, adjusted⁽¹⁾⁽³⁾		12.50		%	13.99		%

Note: Non-GAAP Reconciliations footnotes are located at the end of this section.
Return on average assets⁽²⁾⁽³⁾									1.19		%	0.96		%
Return on average assets, adjusted^(1)(2)(3)									1.27		%	0.96		%



	Quarters Ended March 31,
	2019			2018
Return on Average Common and Tangible Common Equity
Net income applicable to common shares	$	45,655		$	33,199
Intangibles amortization	2,363			1,802
Tax effect of intangibles amortization	(591		)	(508		)
Net income applicable to common shares, excluding intangibles amortization	47,427			34,493
Total adjustments to net income, net of tax⁽¹⁾	2,961			—
Net income applicable to common shares, excluding intangibles amortization, adjusted⁽¹⁾	$	50,388		$	34,493
Average stockholders' common equity	$	2,138,281		$	1,873,419
Less: average intangible assets	(803,408		)	(753,870		)
Average tangible common equity	$	1,334,873		$	1,119,549
Return on average common equity⁽²⁾⁽³⁾	8.66		%	7.19		%
Return on average common equity, adjusted^(1)(2)(3)	9.22		%	7.19		%
Return on average tangible common equity⁽²⁾⁽³⁾	14.41		%	12.50		%
Return on average tangible common equity, adjusted^(1)(2)(3)	15.31		%	12.50		%

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

6364

Table of Contents


		Quarters Ended March 31,						Quarters Ended March 31,
		2018			2017			2019			2018
Efficiency Ratio Calculation	Efficiency Ratio Calculation
Noninterest expense		$	95,582		$	116,642		$	102,110		$	95,582
Less:
Net OREO expense		(1,068		)	(1,700		)	(681		)	(1,068		)
Acquisition and integration related expenses		—			(18,565		)	(3,691		)	—
Delivering Excellence implementation costs								(258		)	—
Total		$	94,514		$	96,377		$	97,480		$	94,514
Tax-equivalent net interest income⁽²⁾		$	119,538		$	117,251		$	140,132		$	119,538
Noninterest income		35,517			39,951			34,906			35,517
Less: net securities gains (losses)		—			—
Total		$	155,055		$	157,202		$	175,038		$	155,055
Efficiency ratio		60.96		%	61.31		%	55.69		%	60.96		%
Efficiency ratio (prior presentation)⁽⁴⁾		N/A			60.98		%

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.


	As of						As of
	March 31, 2018			December 31, 2017			March 31, 2019			December 31, 2018
Tangible Common Equity
Stockholders' equity	$	1,869,287		$	1,864,874		$	2,159,471		$	2,054,998
Less: goodwill and other intangible assets	(754,814		)	(754,757		)	(808,852		)	(790,744		)
Tangible common equity	1,114,473			1,110,117			1,350,619			1,264,254
Less: accumulated other comprehensive income ("AOCI")	57,531			33,036
Less: AOCI							32,159			52,512
Tangible common equity, excluding AOCI	$	1,172,004		$	1,143,153		$	1,382,778		$	1,316,766
Total assets	$	14,379,971		$	14,077,052		$	15,817,769		$	15,505,649
Less: goodwill and other intangible assets	(754,814		)	(754,757		)	(808,852		)	(790,744		)
Tangible assets	$	13,625,157		$	13,322,295		$	15,008,917		$	14,714,905
Risk-weighted assets	$	12,135,662		$	11,920,372		$	13,131,237		$	12,892,180
Tangible common equity to tangible assets	8.18		%	8.33		%	9.00		%	8.59		%
Tangible common equity, excluding AOCI, to tangible assets	8.60		%	8.58		%	9.21		%	8.95		%
Tangible common equity to risk-weighted assets	9.18		%	9.31		%	10.29		%	9.81		%

Footnotes for non-GAAP reconciliations


⁽¹⁾	Adjustments to net income ~~include acquisition and integration related expenses associated with completed and pending acquisitions.~~for each period presented are detailed in the EPS non-GAAP reconciliation above.


⁽²⁾	Presented on a tax-equivalent basis, assuming the ~~applicable federal income tax rate for each period presented. As a result, interest income and yields on tax-exempt securities and loans subsequent to December 31, 2017 are presented using the current~~ federal income tax rate of 21% ~~and prior periods are computed using the federal income tax rate applicable at that time, or 35%~~.


⁽³⁾	Annualized based on the actual number of days for each period presented.


⁽⁴⁾	Presented as calculated prior to March 31, 2018, which included a tax-equivalent adjustment for BOLI. Management believes that removing this adjustment from the current calculation of this metric enhances comparability for peer comparison purposes.

~~Table of Contents~~

~~Efficiency Ratio Calculation~~

~~(Dollar amounts in thousands)~~

For the Years Ended December 31,
2017 2016 2015 2014 2013
Efficiency Ratio
Noninterest expense $ 415,909
$ 339,500
$ 307,216
$ 283,826
$ 256,737
Less:
Net OREO expense (4,683 ) (3,024 ) (5,281 ) (7,075 ) (8,547 )
Special bonus (1,915 ) —
—
—
—
Charitable contribution (1,600 ) —
—
—
—
Acquisition and integration related expenses (20,123 ) (14,352 ) (1,389 ) (13,872 ) —
Lease cancellation fee —
(950 ) —
—
—
Property valuation adjustments —
—
(8,581 ) —
—
Total $ 387,588
$ 321,174
$ 291,965
$ 262,879
$ 248,190
Tax-equivalent net interest income⁽¹⁾
$ 479,965
$ 358,334
$ 322,277
$ 288,589
$ 272,429
Noninterest income 163,149
159,312
136,581
126,618
140,883
Less:
Net securities gains (losses) 1,876
(1,420 ) (2,373 ) (8,097 ) (34,164 )
Net gain on sale-leaseback transaction —
(5,509 ) —
—
—
Gains on sales of properties —
—
—
(3,954 )
Loss on early extinguishment of debt —
—
—
2,059
—
Gain on termination of FHLB forward
commitments
—
—
—
—
(7,829 )
Total $ 644,990
$ 510,717
$ 456,485
$ 405,215
$ 371,319
Efficiency ratio 60.09 % 62.89 % 63.96 % 64.87 % 66.84 %
Efficiency ratio (prior presentation)⁽²⁾
59.73 % 62.59 % 63.57 % 64.57 % 64.19 %


⁽¹⁾	Presented on a tax-equivalent basis, assuming the applicable federal income tax rate for each period presented. As a result, interest income and yields on tax-exempt securities and loans subsequent to December 31, 2017 are presented using the current federal income tax rate of 21% and prior periods are computed using the federal income tax rate applicable at that time, or 35%.


⁽²⁾	Presented as calculated prior to March 31, 2018, which included a tax-equivalent adjustment for BOLI. Management believes that removing this adjustment from the current calculation of this metric enhances comparability for peer comparison purposes.

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 ~~2017~~2018 10-K.

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

Net Interest Income Sensitivity

The analysis of net interest income sensitivity assesses the magnitude of changes in net interest income over a twelve-month measurement period resulting from immediate changes in interest rates using multiple rate scenarios. These scenarios include, but are not limited to, a flat or unchanged rate environment, immediate increases of 100, 200, and 300 basis points, and an immediate decrease of 100 and 200 basis points. Due to the low interest rate environment as of March 31, 2018 and December 31, 2017, management determined that an immediate decrease in interest rates greater than 100 basis points was not meaningful for this analysis.

This simulation analysis is based on expected future cash flows and repricing characteristics for balance sheet and off-balance sheet instruments and incorporates market-based assumptions regarding the effect of changing interest rates on the prepayment rates of certain assets and liabilities. In addition, this sensitivity analysis examines assets and liabilities at the beginning of the measurement period and does not assume any changes from growth or business plans over the next twelve months. Interest-earning assets and interest-bearing liabilities are assumed to re-price based on contractual terms over the twelve-month measurement period assuming an instantaneous parallel shift in interest rates in effect at the beginning of the measurement period. The simulation analysis also incorporates assumptions based on the historical behavior of deposit rates in relation to interest rates. Because these assumptions are inherently uncertain, the simulation analysis cannot definitively measure net interest income or predict the impact of the fluctuation in interest rates on net interest income, but does provide an indication of the Company's sensitivity to changes in interest rates. Actual results may differ from simulated results due to the timing, magnitude, and frequency of interest rate changes as well as changes in market conditions and management strategies.

~~Our balance sheet is asset sensitive based on repricing and maturity characteristics and simulation analysis assumptions.~~ The 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, 49% of the loan portfolio consisted of fixed rate loans and 51% were floating rate loans as of March 31, ~~2018,~~2019, consistent with December 31, ~~2017.~~2018. See Note 11 of "Notes to the CondensedConsolidated Financial Statements" in Part I, Item 1 of this Form 10-Q for additional detail regarding interest rate swaps.

As of March 31, ~~2018,~~2019, investments, consisting of securities and interest-bearing deposits in other banks, are more heavily weighted toward fixed rate securities at ~~96%~~97% of the total compared to 4%3% for floating rate interest-bearing deposits in other ~~banks. This compares to investments comprising 93% of fixed rate securities and 7% of floating rate interest-bearing deposits in other~~ banks, ~~as of~~consistent with December 31, ~~2017.~~2018. Fixed rate loans are most sensitive to the 3-5 year portion of the yield curve and the ~~Bank~~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 ~~$19.5 million, less than 1% of the floating rate loan portfolio,~~not meaningful as of March 31, ~~2018, compared to $60.0 million,~~2019 or ~~1% of the floating rate loan portfolio, as of~~ December 31, ~~2017.~~2018. On the liability side of the balance sheet, ~~84%~~79% of deposits as of ~~both~~ March 31, ~~2018~~2019 and December 31, ~~2017 are~~2018, were demand deposits or interest-bearing core deposits, which either do not pay interest or the interest rates are expected to rise at a slower pace than short-term interest rates.

Table of Contents

Analysis of Net Interest Income Sensitivity

(Dollar amounts in thousands)


	Immediate Change in Rates												Immediate Change in Rates
	+300			+200			+100			-100			+300			+200			+100			-100			-200
As of March 31, 2018
As of March 31, 2019
Dollar change	$	71,025		$	43,560		$	27,235		$	(47,234	)	$	87,561		$	56,840		$	28,393		$	(40,797	)	$	(82,160	)
Percent change	14.1		%	8.7		%	5.4		%	(9.4		)%	15.5		%	10.1		%	5.0		%	(7.2		)%	(14.6		)%
As of December 31, 2017
As of December 31, 2018
Dollar change	$	70,999		$	44,733		$	33,099		$	(44,579	)	$	86,602		$	57,888		$	28,573		$	(43,929	)	$	(87,438	)
Percent change	14.8		%	9.3		%	6.9		%	(9.3		)%	15.3		%	10.2		%	5.0		%	(7.8		)%	(15.4		)%

The sensitivity of estimated net interest income to an instantaneous parallel shift in interest rates is reflected as both dollar and percentage changes. This table illustrates that an instantaneous 200 basis point rise in interest rates as of March 31, ~~2018~~2019 would increase net interest income by ~~$43.6~~$56.8 million, or ~~8.7%~~10.1%, over the next twelve months compared to no change in interest rates. This same measure was ~~$44.7~~$57.9 million, or ~~9.3%~~10.2%, as of December 31, ~~2017.~~2018.

Overall, positive interest rate risk volatility as of March 31, ~~2018 decreased modestly compared to~~2019 was consistent with December 31, ~~2017. This decrease was driven primarily by higher interest rates and continued~~2018 as growth in ~~floating rate~~ loans and securities was funded with time deposits and fixed rate FHLB advances.

ITEM 4. CONTROLS AND PROCEDURES

AtAs of the end of the period covered by this report (the "Evaluation Date"), the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chairman of the Board ~~President~~ and Chief Executive Officer and its Executive Vice President and Chief Financial Officer, of the effectiveness of the design and operation of ~~our~~the Company's disclosure controls and procedures pursuant to Rules ~~13a-15(e)~~13a-15 and 15d-15 ofunder the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Based on that evaluation, the Chairman of the Board ~~President~~ and Chief Executive Officer and Executive Vice President and Chief Financial Officer concluded that as of the Evaluation Date, the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in 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

~~The Company provided~~We provide a discussion of certain risks and uncertainties faced by the Company in the section entitled "Risk Factors" in ~~its 2017 Form~~our 2018 10-K. These risks and uncertainties are not exhaustive. Additional risks and uncertainties are discussed in the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this report, our ~~2017 Form~~2018 10-K, and our other filings made with the SEC, as well as in other sections of such reports.

Table of Contents

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

The Company announced a new stock repurchase program on March 19, 2019 that will remain in effect for one year. Under the new stock repurchase program, the Company may repurchase up to $180 million of its outstanding common stock, $0.01 par value per share. The Company has not repurchased any of its common stock under the new program through March 31, 2019. In addition, the Company has terminated its prior authorization to purchase up to 2.5 million shares of its common stock. The following table summarizes the ~~Company's~~Company’s monthly ~~Common Stock purchases~~common stock repurchases during the first quarter of 2018. The Board approved a stock repurchase program on November 27, 2007. Up to 2.5 million shares of the Company's Common Stock may be repurchased, and the total remaining authorization under the program was 2,487,947 shares as of March 31, 2018. The repurchase program has no set expiration or termination date.

2019.

Issuer Purchases of Equity Securities

Total
Number of
Shares
Purchased⁽¹⁾

Average
Price
Paid per
Share

Total Number
of Shares
Purchased as
Part of a
Publicly
Announced
Plan or
Program

Maximum
Number of
Shares that
May Yet Be
Purchased
Under the
Plan or
Program
January 1 - January 31, 2017 185
$ 24.22
—
2,487,947
February 1 - February 28, 2017 122,074
25.07
—
2,487,947
March 1 - March 31, 2017 8,231
24.54
—
2,487,947
Total 130,490
$ 25.04
—



	Total Number of Shares Purchased⁽¹⁾	Average Price Paid per Share		Total Number of Shares Purchased as Part of a Publicly Announced Plan or Program	Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plan or Program⁽²⁾
January 1 - January 31, 2019	171	$	20.51	—	2,487,947
February 1 - February 28, 2019	121,172	23.04		—	2,487,947
March 1 - March 31, 2019	3,430	22.75		—	$	180,000,000
Total	124,773	$	23.03	—

⁽¹⁾

Consists of shares acquired pursuant to the Company's share-based compensation plans and not the Company's Board-approved stock repurchase ~~program.~~programs. Under the terms of the Company's share-based compensation plans, the Company accepts previously owned shares of ~~Common Stock~~common stock surrendered to satisfy tax withholding obligations associated with the vesting of restricted stock.


⁽²⁾	The Company terminated its prior authorization to purchase up to 2.5 million shares of its common stock ~~or by option holders upon exercise~~in March 2019. The authorization remaining as of March 31, 2019 for the Company to ~~cover~~repurchase up to $180 million of its common stock is pursuant to the ~~exercise price of the~~new stock ~~options.~~repurchase program announced on March 19, 2019.

Table of Contents

ITEM 6. EXHIBITS



Exhibit Number		Description of Documents

10.1⁽¹⁾		Form of Restricted Stock Award Agreement between the Company and certain officers of the Company pursuant to the First Midwest Bancorp, Inc. 2018 Stock and Incentive Plan.
10.2⁽¹⁾		Form of Restricted Stock Unit Award Agreement between the Company and certain officers of the Company pursuant to the First Midwest Bancorp, Inc. 2018 Stock and Incentive Plan.
10.3⁽¹⁾		Form of Performance Shares Award Agreement between the Company and certain officers of the Company pursuant to the First Midwest Bancorp, Inc. ~~Omnibus~~2018 Stock and Incentive Plan.
~~10.2~~⁽¹⁾		~~Employment Agreement, dated as of August 29, 2016, between the Company and its Director of Commercial Banking.~~
11		Statement re: Computation of Per Share Earnings – The computation of basic and diluted earnings per common share is included in Note 810 of the Company's Notes to the Condensed Consolidated Financial Statements included in "ITEM 1. FINANCIAL STATEMENTS" of this document.
15		~~Acknowledgement of Independent Registered Public Accounting Firm.~~
31.1		Certification of Chief Executive Officer pursuant to 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⁾		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2⁽²⁾		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99		~~Review Report of Independent Registered Public Accounting Firm.~~
101		Interactive Data File.


⁽¹⁾	Management contract or compensatory plan or arrangement.


⁽²⁾	Furnished, not filed.

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 ~~7, 2018~~9, 2019

* Duly authorized to sign on behalf of the registrant.



	Quarters Ended									March 31, 2018 % Change From
	March 31, 2018			December 31, 2017			March 31, 2017			December 31, 2017		March 31, 2017
Demand deposits	$	3,466,832		$	3,611,811		$	3,355,674		(4.0	)	3.3
Savings deposits	2,015,679			2,017,489			2,029,631			(0.1	)	(0.7	)
NOW accounts	1,992,672			1,992,150			1,916,816			—		4.0
Money market accounts	1,814,057			1,938,195			1,890,703			(6.4	)	(4.1	)
Core deposits	9,289,240			9,559,645			9,192,824			(2.8	)	1.0
Time deposits	1,726,082			1,613,681			1,473,882			7.0		17.1
Brokered deposits	9,073			6,077			41,715			49.3		(78.3	)
Total time deposits	1,735,155			1,619,758			1,515,597			7.1		14.5
Total deposits	11,024,395			11,179,403			10,708,421			(1.4	)	3.0
Securities sold under agreements to repurchase	119,852			119,797			126,202			—		(5.0	)
Federal funds purchased	11,389			—			—			N/M		N/M
FHLB advances	727,056			434,837			607,889			67.2		19.6
Total borrowed funds	858,297			554,634			734,091			54.8		16.9
Senior and subordinated debt	195,243			195,102			194,677			0.1		0.3
Total funding sources	$	12,077,935		$	11,929,139		$	11,637,189		1.2		3.8
Average interest rate paid on borrowed funds	1.64		%	1.62		%	1.21		%
Weighted-average maturity of FHLB advances	0.9 months			1.0 months			1.3 months
Weighted-average interest rate of FHLB advances	1.74		%	1.26		%	0.74		%



	For the Years Ended December 31,
	2017			2016			2015			2014			2013
Efficiency Ratio
Noninterest expense	$	415,909		$	339,500		$	307,216		$	283,826		$	256,737
Less:
Net OREO expense	(4,683		)	(3,024		)	(5,281		)	(7,075		)	(8,547		)
Special bonus	(1,915		)	—			—			—			—
Charitable contribution	(1,600		)	—			—			—			—
Acquisition and integration related expenses	(20,123		)	(14,352		)	(1,389		)	(13,872		)	—
Lease cancellation fee	—			(950		)	—			—			—
Property valuation adjustments	—			—			(8,581		)	—			—
Total	$	387,588		$	321,174		$	291,965		$	262,879		$	248,190
Tax-equivalent net interest income⁽¹⁾	$	479,965		$	358,334		$	322,277		$	288,589		$	272,429
Noninterest income	163,149			159,312			136,581			126,618			140,883
Less:
Net securities gains (losses)	1,876			(1,420		)	(2,373		)	(8,097		)	(34,164		)
Net gain on sale-leaseback transaction	—			(5,509		)	—			—			—
Gains on sales of properties	—			—			—			(3,954		)
Loss on early extinguishment of debt	—			—			—			2,059			—
Gain on termination of FHLB forward commitments	—			—			—			—			(7,829		)
Total	$	644,990		$	510,717		$	456,485		$	405,215		$	371,319
Efficiency ratio	60.09		%	62.89		%	63.96		%	64.87		%	66.84		%
Efficiency ratio (prior presentation)⁽²⁾	59.73		%	62.59		%	63.57		%	64.57		%	64.19		%



	Total Number of Shares Purchased⁽¹⁾	Average Price Paid per Share		Total Number of Shares Purchased as Part of a Publicly Announced Plan or Program	Maximum Number of Shares that May Yet Be Purchased Under the Plan or Program
January 1 - January 31, 2017	185	$	24.22	—	2,487,947
February 1 - February 28, 2017	122,074	25.07		—	2,487,947
March 1 - March 31, 2017	8,231	24.54		—	2,487,947
Total	130,490	$	25.04	—