UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
 
FORM 10-Q
(Mark One)
☒
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 20192020
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 0-10967001-39320
______________________
fmbilogoa05.jpgFirst Midwest Bancorp, Inc.

fmbi-20200630_g1.jpg
(Exact name of registrant as specified in its charter)
Delaware36-3161078
(State or other jurisdiction of incorporation or organization)(IRS Employer Identification No.)
8750 West Bryn Mawr Avenue,, Suite 1300
Chicago,, Illinois60631-3655
(Address of principal executive offices) (zip code)
______________________
Registrant's telephone number, including area code: 708-831-7483(708) 831-7483
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, $0.01 par valueFMBIThe NASDAQ Stock Market
Depositary shares, each representing a 1/40th interest in a share of 7.000% Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series AFMBIPThe NASDAQ Stock Market
Depositary shares, each representing a 1/40th interest in a share of 7.000% Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series CFMBIOThe NASDAQ Stock Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer☒Accelerated filer☐
Non-accelerated filer☐Smaller reporting company☐
(Do not check if a smaller reporting company)
Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒.
As of August 3, 2020, there were 114,305,540 shares of common stock, $0.01 par value, outstanding.
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, $0.01 Par ValueFMBIThe NASDAQ Stock Market
As of August 5, 2019, there were 110,473,334 shares of common stock, $.01 par value, outstanding.




FIRST MIDWEST BANCORP, INC.
FORM 10-Q
TABLE OF CONTENTS
Page
Part I.FINANCIAL INFORMATION
 
ITEM 1.
Financial Statements (Unaudited)
 
 
3
4
5
6
8
10
 
ITEM 2.
41
 
ITEM 3.
6973
 
ITEM 4.
7074
 
Part II.
OTHER INFORMATION
 
ITEM 1.
7074
 
ITEM 1A.
7074
 
ITEM 2.
7176
 
ITEM 6.
7277



Table of Contents



PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (Unaudited)
FIRST MIDWEST BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Amounts in thousands, except per share data)
  June 30,
2019		 December 31,
2018		 June 30,
2020		December 31,
2019
AssetsAssets (Unaudited)  Assets(Unaudited) 
Cash and due from banksCash and due from banks $199,684
 $211,189
Cash and due from banks$304,445  $214,894  
Interest-bearing deposits in other banksInterest-bearing deposits in other banks 126,966
 78,069
Interest-bearing deposits in other banks637,856  84,327  
Equity securities, at fair valueEquity securities, at fair value 40,690
 30,806
Equity securities, at fair value43,954  42,136  
Securities available-for-sale, at fair valueSecurities available-for-sale, at fair value 2,793,316
 2,272,009
Securities available-for-sale, at fair value3,435,862  2,873,386  
Securities held-to-maturity, at amortized cost 23,277
 10,176
Securities held-to-maturity, at amortized cost, netSecurities held-to-maturity, at amortized cost, net19,628  21,997  
Federal Home Loan Bank ("FHLB") and Federal Reserve Bank ("FRB") stock, at costFederal Home Loan Bank ("FHLB") and Federal Reserve Bank ("FRB") stock, at cost 109,466
 80,302
Federal Home Loan Bank ("FHLB") and Federal Reserve Bank ("FRB") stock, at cost148,512  115,409  
LoansLoans 12,519,604
 11,446,783
Loans14,933,658  12,840,330  
Allowance for loan lossesAllowance for loan losses (105,729) (102,219)Allowance for loan losses(240,052) (108,022) 
Net loansNet loans 12,413,875
 11,344,564
Net loans14,693,606  12,732,308  
Other real estate owned ("OREO")Other real estate owned ("OREO") 15,313
 12,821
Other real estate owned ("OREO")9,947  8,750  
Premises, furniture, and equipment, netPremises, furniture, and equipment, net 148,347
 132,502
Premises, furniture, and equipment, net143,001  147,996  
Investment in bank-owned life insurance ("BOLI")Investment in bank-owned life insurance ("BOLI") 297,118
 296,733
Investment in bank-owned life insurance ("BOLI")299,649  296,351  
Goodwill and other intangible assetsGoodwill and other intangible assets 878,802
 790,744
Goodwill and other intangible assets940,182  875,262  
Accrued interest receivable and other assetsAccrued interest receivable and other assets 415,379
 245,734
Accrued interest receivable and other assets568,239  437,581  
Total assetsTotal assets $17,462,233
 $15,505,649
Total assets$21,244,881  $17,850,397  
LiabilitiesLiabilities    Liabilities
Noninterest-bearing depositsNoninterest-bearing deposits $3,748,316
 $3,642,989
Noninterest-bearing deposits$5,602,016  $3,802,422  
Interest-bearing depositsInterest-bearing deposits 9,440,272
 8,441,123
Interest-bearing deposits10,055,640  9,448,856  
Total depositsTotal deposits 13,188,588
 12,084,112
Total deposits15,657,656  13,251,278  
Borrowed fundsBorrowed funds 1,407,378
 906,079
Borrowed funds2,305,195  1,658,758  
Senior and subordinated debtSenior and subordinated debt 233,538
 203,808
Senior and subordinated debt234,358  233,948  
Accrued interest payable and other liabilitiesAccrued interest payable and other liabilities 332,156
 256,652
Accrued interest payable and other liabilities391,461  335,620  
Total liabilitiesTotal liabilities 15,161,660
 13,450,651
Total liabilities18,588,670  15,479,604  
Stockholders' EquityStockholders' Equity    Stockholders' Equity
Preferred stockPreferred stock230,500  —  
Common stockCommon stock 1,204
 1,157
Common stock1,253  1,204  
Additional paid-in capitalAdditional paid-in capital 1,205,396
 1,114,580
Additional paid-in capital1,268,647  1,211,274  
Retained earningsRetained earnings 1,304,756
 1,192,767
Retained earnings1,359,407  1,380,612  
Accumulated other comprehensive loss, net of tax (2,810) (52,512)
Accumulated other comprehensive income (loss), net of taxAccumulated other comprehensive income (loss), net of tax28,727  (1,954) 
Treasury stock, at costTreasury stock, at cost (207,973) (200,994)Treasury stock, at cost(232,323) (220,343) 
Total stockholders' equityTotal stockholders' equity 2,300,573
 2,054,998
Total stockholders' equity2,656,211  2,370,793  
Total liabilities and stockholders' equityTotal liabilities and stockholders' equity $17,462,233
 $15,505,649
Total liabilities and stockholders' equity$21,244,881  $17,850,397  
    
June 30, 2019 December 31, 2018June 30, 2020December 31, 2019
(Unaudited)    (Unaudited)
Preferred Common Preferred CommonPreferredCommonPreferredCommon
Shares Shares Shares SharesSharesSharesSharesShares
Par value per share$—
 $0.01
 $—
 $0.01
Par value per share$—  $0.01  $—  $0.01  
Shares authorized1,000
 250,000
 1,000
 250,000
Shares authorized1,000  250,000  1,000  250,000  
Shares issued—
 120,407
 —
 115,672
Shares issued231  125,355  —  120,415  
Shares outstanding—
 110,589
 —
 106,375
Shares outstanding231  114,276  —  109,972  
Treasury shares—
 9,818
 —
 9,297
Treasury shares—  11,079  —  10,443  

See accompanying unaudited notes to the condensed consolidated financial statements.

3



Table of Contents



FIRST MIDWEST BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share data)
(Unaudited)
  Quarters Ended 
 June 30,		 Six Months Ended 
 June 30,
  2019 2018 2019 2018
Interest Income        
Loans $157,680
 $127,737
 $302,484
 $246,423
Investment securities 18,005
 13,010
 34,011
 24,766
Other short-term investments 1,997
 1,341
 3,677
 2,244
Total interest income 177,682
 142,088
 340,172
 273,433
Interest Expense        
Deposits 19,316
 8,032
 35,918
 14,211
Borrowed funds 4,459
 3,513
 8,010
 6,992
Senior and subordinated debt 3,595
 3,140
 6,908
 6,264
Total interest expense 27,370
 14,685
 50,836
 27,467
Net interest income 150,312
 127,403
 289,336
 245,966
Provision for loan losses 11,491
 11,614
 21,935
 26,795
Net interest income after provision for loan losses 138,821
 115,789
 267,401
 219,171
Noninterest Income        
Service charges on deposit accounts 12,196
 12,058
 23,736
 23,710
Wealth management fees 12,190
 10,981
 23,790
 21,939
Card-based fees 4,549
 4,394
 8,927
 8,327
Capital market products income 2,154
 2,819
 3,433
 4,377
Mortgage banking income 1,901
 1,736
 2,905
 4,133
Other service charges, commissions, and fees 2,783
 2,838
 5,394
 5,386
Other income 2,753
 2,121
 5,247
 4,592
Total noninterest income 38,526
 36,947
 73,432
 72,464
Noninterest Expense        
Salaries and employee benefits 58,692
 57,932
 116,065
 114,719
Net occupancy and equipment expense 13,671
 13,651
 28,441
 27,424
Professional services 10,467
 8,298
 18,255
 15,878
Technology and related costs 4,908
 4,837
 9,504
 9,608
Net OREO expense 294
 (256) 975
 812
Other expenses 16,154
 13,939
 29,107
 25,542
Delivering Excellence implementation costs 442
 15,015
 700
 15,015
Acquisition and integration related expenses 9,514
 —
 13,205
 —
Total noninterest expense 114,142
 113,416
 216,252
 208,998
Income before income tax expense 63,205
 39,320
 124,581
 82,637
Income tax expense 16,191
 9,720
 31,509
 19,527
Net income $47,014
 $29,600
 $93,072
 $63,110
Per Common Share Data        
Basic earnings per common share $0.43
 $0.29
 $0.86
 $0.61
Diluted earnings per common share $0.43
 $0.29
 $0.86
 $0.61
Dividends declared per common share $0.14
 $0.11
 $0.26
 $0.22
Weighted-average common shares outstanding 108,467
 102,159
 107,126
 102,041
Weighted-average diluted common shares outstanding 108,467
 102,159
 107,126
 102,049
 Quarters Ended 
 June 30,		Six Months Ended 
 June 30,
 2020201920202019
Interest Income
Loans$140,819  $157,680  $288,605  $302,484  
Investment securities20,386  18,005  40,624  34,011  
Other short-term investments839  1,997  3,042  3,677  
Total interest income162,044  177,682  332,271  340,172  
Interest Expense  
Deposits10,077  19,316  27,194  35,918  
Borrowed funds3,156  4,459  8,997  8,010  
Senior and subordinated debt3,577  3,595  7,271  6,908  
Total interest expense16,810  27,370  43,462  50,836  
Net interest income145,234  150,312  288,809  289,336  
Provision for loan losses32,649  11,491  72,181  21,935  
Net interest income after provision for loan losses112,585  138,821  216,628  267,401  
Noninterest Income  
Wealth management fees11,942  12,190  24,303  23,790  
Service charges on deposit accounts9,125  12,196  20,906  23,736  
Mortgage banking income3,477  1,901  5,265  2,905  
Card-based fees3,180  4,549  7,148  8,927  
Other service charges, commissions, and fees2,078  2,783  4,760  5,394  
Capital market products income694  2,154  5,416  3,433  
Net securities losses—  —  (1,005) —  
Other income2,495  2,753  5,560  5,247  
Total noninterest income32,991  38,526  72,353  73,432  
Noninterest Expense
Salaries and employee benefits63,672  58,692  126,531  116,065  
Net occupancy and equipment expense15,116  12,294  29,343  26,091  
Technology and related costs9,853  7,128  18,401  13,398  
Professional services8,880  9,624  19,270  16,711  
Net OREO expense126  294  546  975  
Other expenses17,434  16,154  32,849  29,107  
Acquisition and integration related expenses5,249  9,514  10,721  13,205  
Delivering Excellence implementation costs—  442  —  700  
Total noninterest expense120,330  114,142  237,661  216,252  
Income before income tax expense25,246  63,205  51,320  124,581  
Income tax expense6,182  16,191  12,650  31,509  
Net income$19,064  $47,014  $38,670  $93,072  
Preferred dividends(1,037) —  (1,037) —  
Net income applicable to unvested restricted shares(187) (389) (379) (792) 
Net income applicable to common shareholders$17,840  $46,625  $37,254  $92,280  
Per Common Share Data  
Basic earnings per common share$0.16  $0.43  $0.33  $0.86  
Diluted earnings per common share$0.16  $0.43  $0.33  $0.86  
Dividends declared per common share$0.14  $0.14  $0.28  $0.26  
Weighted-average common shares outstanding113,145  108,467  111,533  107,126  
Weighted-average diluted common shares outstanding113,336  108,467  111,872  107,126  
See accompanying unaudited notes to the condensed consolidated financial statements.

4



Table of Contents



FIRST MIDWEST BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollar amounts in thousands)
(Unaudited)
 Quarters Ended 
 June 30,		Six Months Ended 
 June 30,
 2020201920202019
Net income$19,064  $47,014  $38,670  $93,072  
Securities Available-for-Sale  
Unrealized holding (losses) gains:  
Before tax(1,719) 38,237  60,835  64,989  
Tax effect381  (10,649) (16,916) (18,100) 
Net of tax(1,338) 27,588  43,919  46,889  
Reclassification of net losses included in net income: 
Before tax—  —  (1,005) —  
Tax effect—  —  282  —  
Net of tax—  —  (723) —  
Net unrealized holding (losses) gains(1,338) 27,588  43,196  46,889  
Derivative Instruments
Unrealized holding (losses) gains:
Before tax(7,300) 2,441  (17,340) 3,899  
Tax effect2,042  (680) 4,825  (1,086) 
Net of tax(5,258) 1,761  (12,515) 2,813  
Total other comprehensive (loss) income(6,596) 29,349  30,681  49,702  
Total comprehensive income$12,468  $76,363  $69,351  $142,774  
  Quarters Ended 
 June 30,		 Six Months Ended 
 June 30,
  2019 2018 2019 2018
Net income $47,014
 $29,600
 $93,072
 $63,110
Securities Available-for-Sale        
Unrealized holding gains (losses):        
Before tax 38,237
 (8,980) 64,989
 (34,133)
Tax effect (10,649) 2,535
 (18,100) 9,507
Net of tax 27,588
 (6,445) 46,889
 (24,626)
Derivative Instruments        
Unrealized holding gains (losses):        
Before tax 2,441
 (590) 3,899
 (68)
Tax effect (680) 166
 (1,086) 19
Net of tax 1,761
 (424) 2,813
 (49)
Total other comprehensive income (loss) 29,349
 (6,869) 49,702
 (24,675)
Total comprehensive income $76,363
 $22,731
 $142,774
 $38,435



 Accumulated
Unrealized
(Loss) Gain on
Securities
Available-
for-Sale		Accumulated Unrealized
(Loss) Gain on Derivative Instruments		Unrecognized
Net Pension
Costs		Total
Accumulated
Other
Comprehensive
Income (Loss)
Balance at December 31, 2018$(28,792) $(2,550) $(21,170) $(52,512) 
Other comprehensive income46,889  2,813  —  49,702  
Balance at June 30, 2019$18,097  $263  $(21,170) $(2,810) 
Balance at December 31, 2019$15,808  $819  $(18,581) $(1,954) 
Other comprehensive income43,196  (12,515) —  30,681  
Balance at June 30, 2020$59,004  $(11,696) $(18,581) $28,727  

  
Accumulated
Unrealized
(Loss) Gain on
Securities
Available-
for-Sale
 
Accumulated Unrealized
(Loss) Gain on Derivative Instruments
 
Unrecognized
Net Pension
Costs
 
Total
Accumulated
Other
Comprehensive
Loss
Balance at December 31, 2017 $(13,976) $(3,763) $(15,297) $(33,036)
Adjustment to apply recent accounting pronouncements(1)
 (2,864) (784) (3,041) (6,689)
Other comprehensive loss (24,626) (49) —
 (24,675)
Balance at June 30, 2018 $(41,466) $(4,596) $(18,338) $(64,400)
Balance at December 31, 2018 $(28,792) $(2,550) $(21,170) $(52,512)
Other comprehensive income 46,889
 2,813
 —
 49,702
Balance at June 30, 2019 $18,097
 $263
 $(21,170) $(2,810)
(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.
See accompanying unaudited notes to the condensed consolidated financial statements.


5



Table of Contents



FIRST MIDWEST BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Amounts in thousands, except per share data)
(Unaudited)

Common
Shares
Outstanding		Preferred
Stock		Common
Stock		Additional
Paid-in
Capital		Retained
Earnings		Accumulated
Other
Comprehensive
Income (Loss)		Treasury
Stock		Total
Quarter Ended June 30, 2019Quarter Ended June 30, 2019
Beginning balanceBeginning balance106,900  $—  $1,157  $1,103,991  $1,273,245  $(32,159) $(186,763) $2,159,471  
 
Common
Shares
Outstanding
 
Common
Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Treasury
Stock
 Total
Quarter Ended June 30, 2018              
Beginning balance 103,092
 $1,123
 $1,021,923
 $1,103,840
 $(57,531) $(200,068) $1,869,287
Net income —
 —
 —
 29,600
 —
 —
 29,600
Net income—  —  —  —  47,014  —  —  47,014  
Other comprehensive loss —
 —
 —
 —
 (6,869) —
 (6,869)
Common dividends declared
($0.11 per common share)
 —
 —
 —
 (11,333) —
 —
 (11,333)
Other comprehensive incomeOther comprehensive income—  —  —  —  —  29,349  —  29,349  
Common dividends declared
($0.14 per common share)
Common dividends declared
($0.14 per common share)
—  —  —  —  (15,503) —  —  (15,503) 
Repurchases of common
stock		Repurchases of common
stock		(1,042) —  —  —  —  —  (21,190) (21,190) 
Acquisitions, net of issuance
costs		Acquisitions, net of issuance
costs		4,729  —  47  98,165  —  —  —  98,212  
Common stock issued 4
 1
 67
 —
 —
 —
 68
Common stock issued3  —  —  68  —  —  —  68  
Restricted stock activity (38) —
 872
 —
 —
 (921) (49)Restricted stock activity1  —  —  (7) —  —  12  5  
Treasury stock issued to benefit plans 1
 —
 12
 —
 —
 18
 30
Treasury stock issued to
benefit plans		(2) —  —  (5) —  —  (32) (37) 
Share-based compensation expense —
 —
 2,829
 —
 —
 —
 2,829
Share-based compensation
expense		—  —  —  3,184  —  —  —  3,184  
Ending balance 103,059
 $1,124
 $1,025,703
 $1,122,107
 $(64,400) $(200,971) $1,883,563
Quarter Ended June 30, 2019              
Balance at June 30, 2019Balance at June 30, 2019110,589  $—  $1,204  $1,205,396  $1,304,756  $(2,810) $(207,973) $2,300,573  
Quarter Ended June 30, 2020Quarter Ended June 30, 2020
Beginning balance 106,900
 $1,157
 $1,103,991
 $1,273,245
 $(32,159) $(186,763) $2,159,471
Beginning balance114,213  $—  $1,253  $1,274,935  $1,357,395  $35,323  $(233,199) $2,435,707  
Net income —
 —
 —
 47,014
 —
 —
 47,014
Net income—  —  —  —  19,064  —  —  19,064  
Other comprehensive income —
 —
 —
 —
 29,349
 —
 29,349
Other comprehensive income—  —  —  —  —  (6,596) —  (6,596) 
Preferred dividendsPreferred dividends—  —  —  —  (1,037) —  —  (1,037) 
Common dividends declared
($0.14 per common share)
 —
 —
 —
 (15,503) —
 —
 (15,503)
Common dividends declared
($0.14 per common share)
—  —  —  —  (16,015) —  —  (16,015) 
Repurchases of common stock (1,042) —
 —
 —
 —
 (21,190) (21,190)
Acquisition, net of issuance costs 4,729
 47
 98,165
 —
 —
 —
 98,212
Preferred stock issuedPreferred stock issued—  230,500  —  (9,188) —  —  —  221,312  
Common stock issued 3
 —
 68
 —
 —
 —
 68
Common stock issued6  —  —  79  —  —  —  79  
Restricted stock activity 1
 —
 (7) —
 —
 12
 5
Restricted stock activity64  —  —  (912) —  —  943  31  
Treasury stock issued to benefit plans (2) —
 (5) —
 —
 (32) (37)Treasury stock issued to
benefit plans		(7) —  —  (22) —  —  (67) (89) 
Share-based compensation expense —
 —
 3,184
 —
 —
 —
 3,184
Share-based compensation
expense		—  —  —  3,755  —  —  —  3,755  
Ending balance 110,589
 $1,204
 $1,205,396
 $1,304,756
 $(2,810) $(207,973) $2,300,573
Balance at June 30, 2020Balance at June 30, 2020114,276  $230,500  $1,253  $1,268,647  $1,359,407  $28,727  $(232,323) $2,656,211  

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FIRST MIDWEST BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY – (Continued)
(Amounts in thousands, except per share data)
(Unaudited)
 Common
Shares
Outstanding		Preferred
Stock		Common
Stock		Additional
Paid-in
Capital		Retained
Earnings		Accumulated
Other
Comprehensive
Income (Loss)		Treasury
Stock		Total
Six Months Ended June 30, 2019
Beginning balance106,375  $—  $1,157  $1,114,580  $1,192,767  $(52,512) $(200,994) $2,054,998  
Adjustment to apply recent
  accounting
  pronouncements(1)
—  —  —  —  47,257  —  —  47,257  
Net income—  —  —  —  93,072  —  —  93,072  
Other comprehensive loss—  —  —  —  —  49,702  —  49,702  
Common dividends declared
  ($0.26 per common share)
—  —  —  —  (28,340) —  —  (28,340) 
Repurchases of common
stock		(1,042) —  —  —  —  —  (21,190) (21,190) 
Acquisitions, net of issuance
costs		4,879  —  47  97,351  —  —  4,098  101,496  
Common stock issued30  —  —  (69) —  —  674  605  
Restricted stock activity353  —  —  (13,320) —  —  9,550  (3,770) 
Treasury stock issued to
benefit plans		(6) —  —  (9) —  —  (111) (120) 
Share-based compensation
expense		—  —  —  6,863  —  —  —  6,863  
Balance at June 30, 2019110,589  $—  $1,204  $1,205,396  $1,304,756  $(2,810) $(207,973) $2,300,573  
Six Months Ended June 30, 2020
Beginning balance109,972  $—  $1,204  $1,211,274  $1,380,612  $(1,954) $(220,343) $2,370,793  
Adjustment to apply recent
  accounting
  pronouncements(2)
—  —  —  —  (26,821) —  —  (26,821) 
Net income—  —  38,670  38,670  
Other comprehensive income—  —  —  —  —  30,681  —  30,681  
Preferred dividends—  —  —  —  (1,037) —  —  (1,037) 
Common dividends declared
  ($0.28 per common share)
—  —  —  —  (32,017) —  —  (32,017) 
Repurchases of common
stock		(1,171) —  —  —  —  —  (22,557) (22,557) 
Acquisition, net of issuance
costs		4,930  —  49  71,834  —  —  —  71,883  
Preferred stock issued—  230,500  —  (9,188) —  —  —  221,312  
Common stock issued43  —  —  251  —  —  679  930  
Restricted stock activity513  —  —  (13,180) —  —  10,045  (3,135) 
Treasury stock issued to
benefit plans		(11) —  —  (21) —  —  (147) (168) 
Share-based compensation
expense		—  —  —  7,677  —  —  —  7,677  
Balance at June 30, 2020114,276  $230,500  $1,253  $1,268,647  $1,359,407  $28,727  $(232,323) $2,656,211  
  
Common
Shares
Outstanding
 
Common
Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Treasury
Stock
 Total
Six Months Ended June 30, 2018              
Beginning balance 102,717
 $1,123
 $1,031,870
 $1,074,990
 $(33,036) $(210,073) $1,864,874
Adjustment to apply recent accounting
  pronouncements(1)
 —
 —
 —
 6,689
 (6,689) —
 —
Net income —
 —
 —
 63,110
 —
 —
 63,110
Other comprehensive loss —
 —
 —
 —
 (24,675) —
 (24,675)
Common dividends declared
  ($0.22 per common share)
 —
 —
 —
 (22,682) —
 —
 (22,682)
Common stock issued 5
 1
 161
 —
 —
 667
 829
Restricted stock activity 339
 —
 (12,558) —
 —
 8,511
 (4,047)
Treasury stock issued to benefit plans (2) —
 34
 —
 —
 (76) (42)
Share-based compensation expense —
 —
 6,196
 —
 —
 —
 6,196
Ending balance 103,059
 $1,124
 $1,025,703
 $1,122,107
 $(64,400) $(200,971) $1,883,563
Six Months Ended June 30, 2019              
Beginning balance 106,375
 $1,157
 $1,114,580
 $1,192,767
 $(52,512) $(200,994) $2,054,998
Adjustment to apply recent accounting
  pronouncements(2)
 —
 —
 —
 47,257
 —
 —
 47,257
Net income —
 —
 —
 93,072
 —
 —
 93,072
Other comprehensive income —
 —
 —
 —
 49,702
 —
 49,702
Common dividends declared
  ($0.26 per common share)
 —
 —
 —
 (28,340) —
 —
 (28,340)
Repurchases of common stock (1,042) —
 —
 —
 —
 (21,190) (21,190)
Acquisition, net of issuance costs 4,879
 47
 97,351
 —
 —
 4,098
 101,496
Common stock issued 30
 —
 (69) —
 —
 674
 605
Restricted stock activity 353
 —
 (13,320) —
 —
 9,550
 (3,770)
Treasury stock issued to benefit plans (6) —
 (9) —
 —
 (111) (120)
Share-based compensation expense —
 —
 6,863
 —
 —
 

 6,863
Ending balance 110,589
 $1,204
 $1,205,396
 $1,304,756
 $(2,810) $(207,973) $2,300,573
(1)As a result of accounting guidance adopted in the first quarter of 2019, the remaining deferred gain on a sale-leaseback transaction was recognized as a cumulative-effect adjustment to retained earnings as of January 1, 2019.
(2)As a result of accounting guidance adopted in the first quarter of 2020, a portion of the increase in allowance for credit losses, net of tax, was recognized as a cumulative-effect adjustment to retained earnings as of January 1, 2020. For further discussion of this guidance, see Note 2, "Recent Accounting Pronouncements and Other Guidance."
(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.

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FIRST MIDWEST BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
(Unaudited)
 Six Months Ended 
 June 30,
 20202019
Operating Activities
Net income$38,670  $93,072  
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses72,181  21,935  
Depreciation of premises, furniture, and equipment8,397  8,093  
Net amortization of premium on securities10,914  6,609  
Net securities losses1,005  —  
Gains on sales of 1-4 family mortgages and corporate loans held-for-sale(7,230) (3,391) 
Net losses (gains) on sales and valuation adjustments of OREO128  (1,169) 
Amortization of the FDIC indemnification asset892  604  
Net losses on sales and valuation adjustments of premises, furniture, and equipment213  1,252  
BOLI income(3,798) (3,645) 
Share-based compensation expense7,677  6,863  
Tax benefit related to share-based compensation148  160  
Amortization of other intangible assets5,590  4,987  
Originations of mortgage loans held-for-sale(297,019) (164,398) 
Proceeds from sales of mortgage loans held-for-sale292,410  154,191  
Net increase in equity securities(1,818) (2,918) 
Net (increase) decrease in accrued interest receivable and other assets(124,850) 19,027  
Net increase (decrease) in accrued interest payables and other liabilities12,871  (36,151) 
Net cash provided by operating activities16,381  105,121  
Investing Activities  
Proceeds from maturities, repayments, and calls of securities available-for-sale497,430  167,502  
Proceeds from sales of securities available-for-sale39,095  93,332  
Purchases of securities available-for-sale(914,234) (460,066) 
Proceeds from maturities, repayments, and calls of securities held-to-maturity2,467  3,162  
Purchases of securities held-to-maturity(18) (2,837) 
Net purchases of FHLB stock(33,103) (27,683) 
Net increase in loans(1,360,147) (394,713) 
Premiums paid on BOLI, net of proceeds from claims2,997  3,260  
Proceeds from sales of OREO230  5,236  
Proceeds from sales of premises, furniture, and equipment—  2,291  
Purchases of premises, furniture, and equipment(4,647) (10,360) 
Net cash received from (paid for) acquisition142,282  (13,532) 
Net cash used in investing activities(1,627,648) (634,408) 
Financing Activities  
Net increase in deposit accounts1,456,302  117,722  
Net increase in borrowed funds634,905  499,553  
Net proceeds from the issuance of preferred stock221,312  —  
Repurchases of common stock(22,557) (21,190) 
Cash dividends paid(32,480) (25,636) 
Restricted stock activity(3,135) (3,770) 
Net cash provided by financing activities2,254,347  566,679  
Net increase in cash and cash equivalents643,080  37,392  
Cash and cash equivalents at beginning of period299,221  289,258  
Cash and cash equivalents at end of period$942,301  $326,650  
  Six Months Ended 
 June 30,
  2019 2018
Operating Activities    
Net income $93,072
 $63,110
Adjustments to reconcile net income to net cash provided by operating activities:    
Provision for loan losses 21,935
 26,795
Depreciation of premises, furniture, and equipment 8,093
 7,584
Net amortization of premium on securities 6,609
 7,738
Gains on sales of 1-4 family mortgages and corporate loans held-for-sale (3,391) (3,134)
Net (gains) losses on sales and valuation adjustments of OREO (1,169) 493
Amortization of the FDIC indemnification asset 604
 604
Net losses on sales and valuation adjustments of premises, furniture, and equipment 1,252
 5,449
BOLI income (3,645) (2,877)
Share-based compensation expense 6,863
 6,196
Tax benefit related to share-based compensation 160
 158
Amortization of other intangible assets 4,987
 3,596
Originations of mortgage loans held-for-sale (164,398) (114,142)
Proceeds from sales of mortgage loans held-for-sale 154,191
 130,900
Net increase in equity securities (2,918) (586)
Net decrease in accrued interest receivable and other assets 19,027
 8,072
Net (decrease) increase in accrued interest payables and other liabilities (36,151) 16,100
Net cash provided by operating activities 105,121
 156,056
Investing Activities    
Proceeds from maturities, repayments, and calls of securities available-for-sale 167,502
 154,136
Proceeds from sales of securities available-for-sale 93,332
 —
Purchases of securities available-for-sale (460,066) (462,071)
Proceeds from maturities, repayments, and calls of securities held-to-maturity 3,162
 718
Purchases of securities held-to-maturity (2,837) —
Net purchases of FHLB stock (27,683) (13,070)
Net increase in loans (394,713) (479,514)
Premiums paid on BOLI, net of proceeds from claims 3,260
 113
Proceeds from sales of OREO 5,236
 8,638
Proceeds from sales of premises, furniture, and equipment 2,291
 150
Purchases of premises, furniture, and equipment (10,360) (16,891)
Net cash paid for acquisition (13,532) —
Net cash used in investing activities (634,408) (807,791)
Financing Activities    
Net increase in deposit accounts 117,722
 438,938
Net increase in borrowed funds 499,553
 266,160
Purchase of treasury stock (21,190) —
Cash dividends paid (25,636) (21,619)
Restricted stock activity (3,770) (4,047)
Net cash provided by financing activities 566,679
 679,432
Net increase in cash and cash equivalents 37,392
 27,697
Cash and cash equivalents at beginning of period 289,258
 346,570
Cash and cash equivalents at end of period $326,650
 $374,267

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FIRST MIDWEST BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS – (Continued)
(Dollar amounts in thousands)
(Unaudited)
 Six Months Ended 
 June 30,
 20202019
Supplemental Disclosures of Cash Flow Information:
Income taxes paid$587  $16,948  
Interest paid to depositors and creditors46,331  47,750  
Dividends declared, but unpaid15,857  15,377  
Stock issued for acquisitions, net of issuance costs71,883  101,496  
Non-cash transfers of loans to OREO121  322  
Non-cash transfers of loans to other assets—  13,175  
Non-cash transfers of loans held-for-investment to loans held-for-sale2,193  4,762  
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.
  Six Months Ended 
 June 30,
  2019 2018
Supplemental Disclosures of Cash Flow Information:    
Income taxes paid (refunded) $16,948
 $(18,898)
Interest paid to depositors and creditors 47,750
 25,056
Dividends declared, but unpaid 15,377
 11,248
Stock issued for acquisitions, net of issuance costs 101,496
 —
Non-cash transfers of loans to OREO 322
 1,172
Non-cash transfers of loans to other assets 13,175
 —
Non-cash transfers of loans held-for-investment to loans held-for-sale 4,762
 9,546
Non-cash transfer of trading securities and securities available-for-sale to equity securities —
 27,855
Non-cash recognition of right-of-use asset 143,561
 —
Non-cash recognition of lease liability 143,561
 —

See accompanying unaudited notes to the condensed consolidated financial statements.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation – The accompanying unaudited condensed consolidated interim financial statements ("consolidated financial statements") of First Midwest Bancorp, Inc. (the "Company"), a Delaware corporation, were prepared in accordance with the rules and regulations of the Securities and Exchange Commission ("SEC") for quarterly reports on Form 10-Q and reflect all adjustments that management deems necessary for the fair presentation of the financial position and results of operations for the periods presented. The results of operations for the quarter and six months ended June 30, 20192020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.2020.
The accounting and reporting policies of the Company and its subsidiaries conform to U.S. generally accepted accounting principles ("GAAP") and general practices within the banking industry. The accompanying consolidated financial statements do not include certain information and note disclosures required by GAAP for complete annual financial statements. Therefore, these financial statements should be read in conjunction with the Company's 20182019 Annual Report on Form 10-K ("20182019 10-K"). The Company uses the accrual basis of accounting for financial reporting purposes. Certain reclassifications were made to prior year amounts to conform to the current year presentation.
Use of Estimates – The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Although these estimates and assumptions are based on the best available information, actual results could differ from those estimates.
Principles of Consolidation – The accompanying consolidated financial statements include the financial position and results of operations of the Company and its subsidiaries after elimination of all significant intercompany accounts and transactions. Assets held in a fiduciary or agency capacity are not assets of the Company or its subsidiaries and are not included in the consolidated financial statements.
The accounting policies related to business combinations, loans, the allowance for credit losses, lease obligations, and derivative financial instruments are presented below. For a summary of all other significant accounting policies, see Note 1, "Summary of Significant Accounting Policies," in the Company's 20182019 10-K.
Business Combinations – Business combinations are accounted for under the acquisition method of accounting. Assets acquired and liabilities assumed are recorded at their estimated fair values as of the date of acquisition, with any excess of the purchase price of the acquisition over the fair value of the identifiable net tangible and intangible assets acquired recorded as goodwill. Alternatively, a gain is recorded if the fair value of assets purchased exceeds the fair value of liabilities assumed and consideration paid. The results of operations of the acquired business are included in the Condensed Consolidated Statements of Income from the effective date of the acquisition.
Allowance for SecuritiesHeld-to-Maturity– The Company maintains an allowance for securities held-to-maturity for the risk of loss inherent in these financial assets, which reflects the difference between the carrying value and the discounted expected future cash flows of these assets and is included in securities held-to-maturity, at amortized cost, net in the Consolidated Statements of Financial Condition.
Loans – Loans held-for-investment are loans that the Company intends to hold until they are paid in full and are carried at the principal amount outstanding, including certain net deferred loan origination fees. Loan origination fees, commitment fees, and certain direct loan origination costs are deferred, and the net amount is amortized as a yield adjustment over the contractual life of the related loans or commitments and included in interest income. Fees related to letters of credit are amortized into fee income over the contractual life of the commitment. Other credit-related fees are recognized as fee income when earned. The Company's net investment in direct financing leases is included in loans and consists of future minimum lease payments and estimated residual values, net of unearned income. Interest income on loans is accrued based on principal amounts outstanding. Loans held-for-sale are carried at the lower of aggregate cost or fair value and included in other assets in the Consolidated Statements of Financial Condition.
Acquired and Covered Loans – Covered loans consists of loans acquired by the Company in Federal Deposit Insurance Corporation ("FDIC")-assisted transactions that are covered by loss share agreements with the FDIC (the "FDIC Agreements"), under which the FDIC reimburses the Company for the majority of the losses and eligible expenses related to these assets during the coverage period. Acquired loans consist of all other loans that were acquired in business combinations, thatincluding loans which are not covered by the FDICFederal Deposit Insurance Corporation ("FDIC") Agreements. Certain loans that were previously classified as covered loans are no longer covered under the FDIC Agreements, and are included in acquired loans. Covered loans and acquiredAcquired loans are included within loans held-for-investment.
Acquired and covered loans are separated into (i) non-purchased credit impaireddeteriorated ("non-PCI"non-PCD") loans and (ii) purchased credit impaireddeteriorated ("PCI"PCD") loans. Non-PCINon-PCD loans include loans that did not have evidence of more-than-insignificant credit deterioration since origination at the acquisition date. PCIPCD loans include loans that had evidence of more-than-insignificant credit deterioration
10

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

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was evaluated using various indicators, such as past due and non-accrual status. Leases and revolving loans do not qualify to be accounted for as PCIPCD loans and are accounted for as non-PCInon-PCD loans.
The acquisition adjustment related to non-PCInon-PCD loans is amortized into interest income over the contractual life of the related loans. If an acquired non-PCInon-PCD loan is renewed subsequent to the acquisition date, any remaining acquisition adjustment is accreted into interest income and the loan is considered a new loan that is no longer classified as an acquired loan.
PCIPCD loans are generally accounted for based on estimates of expected future cash flows. To estimateThe Company uses a discounted cash flow analysis involving significant unobservable inputs and assumptions to measure the fair value of PCD loans. The significant assumptions utilized in the Company generally aggregates purchased consumer loanscash flow analysis include the probability of default ("PD"), loss given default ("LGD"), and commercial loans into pools of loans with common risk characteristics, such as delinquency status, credit score, and internal risk ratings. The fair values of larger balance commercialdiscount rate. PCD loans are estimated onrecorded at fair value, excluding credit-related adjustments, for which an individual basis.allowance for loan losses is established at the acquisition date through purchase accounting adjustments. Expected future cash flows in excess of the fair value of loans at the purchase date ("accretable yield") are recorded as interest income over the life of the loans if the timing and amount of the expected future cash flows can be reasonably estimated. The non-accretable yield represents the difference between contractually required payments and the expected future cash flows determined at acquisition. Subsequent increases in expected future cash flows are offset against the allowance for credit losses to the extent an allowance has been established or otherwise recognized as interest income prospectively. The present value of any decreases in expected future cash flows is recognized by recording a charge-off throughacquisition date, the allowance for loan losses or providing an allowanceon PCD loans is estimated as are the allowances for loan losses.all other loans in the portfolio.
Prior to the adoption of the current expected credit losses ("CECL") accounting guidance on January 1, 2020, acquired loans were separated into (i) non-purchased credit impaired ("non-PCI") loans and (ii) purchased credit impaired ("PCI") loans. The significant accounting policies related to non-PCI and PCI acquired loans are presented in Note 1, "Summary of Significant Accounting Policies" to the Consolidated Financial Statements in the Company's 2019 10-K.
90-Days Past Due Loans – The Company's accrual of interest on loans is generally discontinued at the time the loan is 90 days past due unless the credit is sufficiently collateralized and in the process of renewal or collection.
Non-accrual Loans – Generally, corporate loans are placed on non-accrual status (i) when either principal or interest payments become 90 days or more past due unless the credit is sufficiently collateralized and in the process of renewal or collection, or (ii) when an individual analysis of a borrower's creditworthiness warrants a downgrade to non-accrual regardless of past due status. When a loan is placed on non-accrual status, unpaid interest credited to income in the current year is reversed, and unpaid interest accrued in prior years is charged against the allowance for loan losses. After the loan is placed on non-accrual status, all debt service payments are applied to the principal on the loan. Future interest income may only be recorded on a cash basis after recovery of principal is reasonably assured. Non-accrual loans are returned to accrual status when the financial position of the borrower and other relevant factors indicate that the Company will collect all principal and interest.
Non-accrual loans with balances under a specified threshold are not individually evaluated for impairment. For all other non-accrual loans, impairment is measured by comparing the estimated value of the loan to the recorded book value. The value of collateral-dependent loans is based on the fair value of the underlying collateral, less costs to sell. The value of other loans is measured using the present value of expected future cash flows discounted at the loan's effective interest rate.
Commercial loans and loans secured by real estate are charged-off when deemed uncollectible. A loss is recorded if the net realizable value of the underlying collateral is less than the outstanding principal and interest. Consumer loans that are not secured by real estate are subject to mandatory charge-off at a specified delinquency date and are usually not classified as non-accrual prior to being charged-off. Closed-end consumer loans, which include installment, automobile, and single payment loans, are usually charged-off no later than the end of the month in which the loan becomes 120 days past due.
PCI loans are generally considered accruing loans unless reasonable estimates of the timing and amount of expected future cash flows cannot be determined. Loans without reasonable future cash flow estimates are classified as non-accrual loans, and interest income is not recognized on those loans until the timing and amount of the expected future cash flows can be reasonably determined.
Troubled Debt Restructurings ("TDRs") – A restructuring is considered a TDR when (i) the borrower is experiencing financial difficulties, and (ii) the creditor grants a concession, such as forgiveness of principal, reduction of the interest rate, changes in payments, or extension of the maturity date. Loans are not classified as TDRs when the modification is short-term or results in an insignificant delay in payments. The Company's TDRs are determined on a case-by-case basis.
The Company does not accrue interest on a TDR unless it believes collection of all principal and interest under the modified terms is reasonably assured. For a TDR to begin accruing interest, the borrower must demonstrate some level of past performance and the future capacity to perform under the modified terms. Generally, six months of consecutive payment performance under the restructured terms is required before a TDR is returned to accrual status. However, the period could vary depending on the individual facts and circumstances of the loan. An evaluation of the borrower's current creditworthiness is used to assess the borrower's capacity to repay the loan under the modified terms. This evaluation includes an estimate of expected future cash flows, evidence of strong financial position, and estimates of the value of collateral, if applicable. For TDRs to be removed from TDR status in the calendar year after the restructuring, the loans must (i) have an interest rate and terms that reflect market conditions at the time of restructuring, and (ii) be in compliance with the modified terms. If the loan was restructured at below market rates and terms, it continues to be separately reported as restructured until it is paid in full or charged-off.
Impaired Loans – Impaired loans consist of corporate non-accrual loans and TDRs. A loan is considered impaired when it is probable that the Company will not collect all contractual principal and interest. With the exception of accruing TDRs, impaired loans are classified as non-accrual and are exclusive of smaller homogeneous loans, such as home equity, 1-4 family mortgages, and installment loans. Impaired loans with balances under a specified threshold are not individually evaluated for impairment. For all other impaired loans, impairment is measured by comparing the estimated value of the loan to the recorded book value.

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The value of collateral-dependent loans is based on the fair value of the underlying collateral, less costs to sell. The value of other loans is measured using the present value of expected future cash flows discounted at the loan's initial effective interest rate.
Allowance for Credit Losses – The allowance for credit losses is comprised of the allowance for loan losses and the reserveallowance for unfunded commitments and is maintained by management at a level believed adequate to absorb estimatedcurrent expected credit losses inherent in the existing loan portfolio. Determination of the allowance for credit losses is subjective since it requires significant estimates and management judgment, including the amounts and timing of expected future cash flows, on impaired loans, estimated losses on pools of homogeneous loans,actual loss experience, consideration of current national, regional, and local economic trends and conditions, reasonable and supportable forecasts about the future, changes in interest rates and property values, various internal and external qualitative factors, and other factors.
Loans deemed to be uncollectible are charged-off against the allowance for loan losses, while recoveries of amounts previously charged-off are credited to the allowance for loan losses. Additions to the allowance for loan losses are charged to expense through the provision for loan losses. The amount of provision depends on a number of factors, including net charge-off levels, loan growth, changes in the composition of the loan portfolio, and the Company's assessment of the allowance for loan losses based on the methodology discussed below.
Allowance for Loan Losses – The allowance for loan losses consists of (i) specific reservesallowance for individual loans where the recorded investment exceeds the value, (ii) an allowance based on a loss migration analysis that uses historical credit loss experience with consideration of reasonable and supportable forecasts of economic conditions for each loan category, and (iii) an allowance based on other internal and external qualitative factors.
The specific reserves component of the allowance for loan lossesindividual loans is based on a periodic analysis of impairednon-accrual loans individually exceeding a fixedspecific dollar amount. If the estimated value of an impaireda non-accrual loan is less than theits recorded book value, the Company either establishes a valuation(i) provides an allowance (i.e., a specific reserve) equal toin the amount of the excess of the book value over the collateralestimated value of the related loan as a component ofor, (ii) if the allowance for loan losses orloss is confirmed, charges off the amount if it is a confirmed loss.
The general reserve componentallowance by loan category is based on a discounted cash flows analysis as future cash flows are discounted at an effective rate of return. In addition, estimates of losses on future cash flows is forecasted by applying probability of default and loss migration analysis, which examines actual loss experience by loan category forgiven default factors as well as prepayment and curtailment assumptions to cash flows that are adjusted to a rolling eight quarter period and the related internal risk rating for corporate loans. The loss migrationpresent value. This discounted cash flow analysis is updated quarterly, primarily using actual loss experience. experience adjusted for current reasonable and supportable forecasts of economic conditions over a one-year forecast period. After the one-year forecast period, a one-year reversion period adjusts loss experience to the historical average on a straight-line basis. These forecasts consider multiple scenarios of key assumptions including national unemployment rates, housing price indices, and gross domestic product.
This general allowance component is then adjusted based on management's consideration of many internal and external qualitative factors, including:
•Changes in the composition of the loan portfolio, trends in the volume of loans, and trends in delinquent and non-accrual loans that could indicate that historical trends do not reflect current conditions.
•Changes in credit policies and procedures, such as underwriting standards and collection, charge-off, and recovery practices.
•Changes in the experience, ability, and depth of credit management and other relevant staff.
•Changes in the quality of the Company's loan review system and Board of Directors oversight.
•The effect of any concentration of credit and changes in the level of concentrations, such as loan type or risk rating.
•Changes in the value of the underlying collateral for collateral-dependent loans.
•Changes in the national, regional, and local economy that affect the collectability of various segments of the portfolio.
•The effect of other external factors, such as competition and legal and regulatory requirements, on the Company's loan portfolio.
The allowance for loan losses also consists ofincludes an allowance on acquired non-PCD and covered non-PCI and PCIPCD loans. An allowance for loan losses is recorded on acquired PCD loans at the acquisition date through purchase accounting adjustments. Subsequent to the acquisition date, the allowance for loan losses on PCD loans is estimated as are the allowances for all other loans in the portfolio. No allowance for loan losses is recorded on acquired non-PCD loans at the acquisition date. Subsequent todate through purchase accounting. Instead, an allowance is established on acquired non-PCD loans at the acquisition date an allowance for credit losses is established as necessary to reflect credit deterioration. The acquired non-PCI allowance is based on management's evaluation of the acquired non-PCI loan portfolio giving consideration to the current portfolio balance, including the remaining acquisition adjustments, maturity dates, and overall credit quality. The allowance for covered non-PCIin-line with all other loans is calculated in the same mannerportfolio as if the general reserve component based on a loss migration analysis as discussed above. The acquired and covered PCI allowance reflectsloans were originated at the difference between the carrying value and the discounted expected future cash flows of the acquired and covered PCI loans.acquisition date. On a periodic basis, the adequacy of this allowance is determined through a re-estimation of expected future cash flows on all of the outstanding acquired and covered PCI loans using either a probability of default/loss given default ("PD/LGD")LGD methodology or a specific review methodology. The PD/LGD model is a loss model that estimates expected future cash flows using a probability of default curve and loss given default estimates. Acquired non-PCI loans that have renewed subsequent to the respective acquisition dates are no longer classified as acquired loans. Instead, they are included in the general loan population and allocated an allowance based on a loss migration analysis.
ReserveAllowance for Unfunded Commitments – The Company also maintains a reservean allowance for unfunded commitments, including letters of credit, for the risk of loss inherent in these arrangements. The reserveallowance for unfunded commitments is estimated using the historical credit loss migration analysis from theexperience with consideration of reasonable and supportable forecasts of economic conditions for each loan category. The allowance for loan losses, adjusted for probabilities of future funding requirements. The reserve for unfunded commitments is included in other liabilities in the Consolidated Statements of Financial Condition.
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The establishment of the allowance for credit losses involves a high degree of judgment and estimation given the difficulty of assessing the factors impacting loan repayment and estimating the timing and amount of losses. While management utilizes its best judgment and

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information available, the adequacy of the allowance for credit losses depends on a variety of factors beyond the Company's control, including the performance of its loan portfolio, current national, regional, and local economic trends, reasonable and supportable forecasts about the economy,future, changes in interest rates and property values, the amounts and timing of expected future cash flows on non-accrual loans, estimated losses on pools of homogenous loans, the interpretation of loan risk classifications by regulatory authorities.authorities, various internal and external qualitative factors, and other factors.
Lease Obligations – The Company leases certain premises under non-cancelable operating leases in the normal course of business operations. These lease obligations result in the recognition of right-of-use assets and associated lease liabilities. The amount of right-of-use assets and associated lease liabilities recorded is based on the present value of future minimum lease payments. Right-of-use assets are amortized on a straight-line basis over the estimated useful lives of the related premises, and interest associated with the net present value of future minimum lease payments is included in net occupancy and equipment expense in the consolidated financial statements.
Derivative Financial Instruments – To provide derivative products to customers and in the ordinary course of business, the Company enters into derivative transactions as part of its overall interest rate risk management strategy to minimize significant unplanned fluctuations in earnings and expected future cash flows caused by interest rate volatility. All derivative instruments are recorded at fair value as either other assets or other liabilities in the Consolidated Statements of Financial Condition. Subsequent changes in a derivative's fair value are recognized in earnings unless specific hedge accounting criteria are met.
On the date the Company enters into a derivative contract, the derivative is designated as a fair value hedge, a cash flow hedge, or a non-hedge derivative instrument. Fair value hedges are designed to mitigate exposure to changes in the fair value of an asset or liability attributable to a particular risk, such as interest rate risk. Cash flow hedges are designed to mitigate exposure to variability in expected future cash flows to be received or paid related to an asset, liability, or other type of forecasted transaction. The Company formally documents all relationships between hedging instruments and hedged items, including its risk management objective and strategy at inception.
At the hedge's inception, a formal assessment is performed to determine the effectiveness of the derivative in offsetting changes in the fair values or expected future cash flows of the hedged items in the current period and prospectively. If a derivative instrument designated as a hedge is terminated or ceases to be highly effective, hedge accounting is discontinued prospectively, and the gain or loss is amortized into earnings. For fair value hedges, the gain or loss is amortized over the remaining life of the hedged asset or liability. For cash flow hedges, the gain or loss is amortized over the same period that the forecasted hedged transactions impact earnings. If the hedged item is disposed of, any fair value adjustments are included in the gain or loss from the disposition of the hedged item. If the forecasted transaction is no longer probable, the gain or loss is included in earnings immediately.
For fair value hedges, changes in the fair value of the derivative instruments, as well as changes in the fair value of the hedged item, are recognized in earnings in the same income statement line item as the earnings effect of the hedged item. For cash flow hedges, the effective portion of the change in fair value of the derivative instrument is reported as a component of accumulated other comprehensive lossincome (loss) and is reclassified to earnings when the hedged transaction is reflected in earnings.
2. RECENT ACCOUNTING PRONOUNCEMENTS AND OTHER GUIDANCE
Adopted Accounting Pronouncements
Leases: In February of 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-02 to increase transparency and comparability across entities for leasing arrangements. This guidance requires lessees to recognize assets and liabilities for most leases. For lessors, this guidance modifies the lease classification criteria and the accounting for sales-type and direct financing leases. In addition, this guidance clarifies criteria for the determination of whether a contract is or contains a lease. This guidance is effective for annual and interim periods beginning after December 15, 2018.
The Company adopted this guidance on January 1, 2019, which resulted in the recognition of $143.6 million of right-of-use assets and additional associated lease liabilities for its operating leases. The amount of right-of-use assets and associated lease liabilities recorded upon adoption was based on the present value of future minimum lease payments, the amount of which depended on the population of leases in effect at the date of adoption. This guidance also applies to the Company's net investment in direct financing leases, which is included in loans, but did not have a material impact.
The Company has elected certain practical expedients contained in this guidance, which, among other provisions, allowed the Company to not reassess the historical lease classification, initial direct costs, or existing contracts for the inclusion of leases. The Company has also elected the practical expedients for the use of hindsight in determining the lease term and the right-of-use assets, as well as an election not to apply the recognition requirements of the guidance to leases with terms of 12 months or less. The application of hindsight practical expedient resulted in the determination that most renewal options would not be reasonably certain in determining the expected lease term.
First Midwest Bank (the "Bank") entered into a sale-leaseback transaction in 2016 that resulted in a deferred gain. Upon adoption of this guidance, the remaining deferred gain of $47.3 million after tax was recognized immediately as a cumulative-effect

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adjustment to equity. For additional discussion of the sale-leaseback transaction, see Note 8, "Lease Obligations." The adoption of this guidance was applied retrospectively at the beginning of the period of adoption through a cumulative-effect adjustment and did not materially impact the Company's results of operations or liquidity but did result in a material increase in assets, liabilities, and equity.
Premium Amortization on Purchased Callable Debt Securities: In March of 2017, the FASB issued ASU 2017-08 that shortens the amortization period for the premium on certain purchased callable debt securities to the earliest call date. This guidance is effective for annual and interim periods beginning after December 15, 2018. The adoption of this guidance on January 1, 2019 did not materially impact the Company's financial condition, results of operations, or liquidity.
Improvements to Nonemployee Share-based Payment Accounting: In June of 2018, the FASB issued ASU 2018-07 that aligns the measurement and classification guidance for share-based payments to nonemployees with the guidance for share-based payments to employees. This guidance is effective for annual and interim periods beginning after December 15, 2018. The adoption of this guidance on January 1, 2019 did not materially impact the Company's financial condition, results of operations, or liquidity.
Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract: In August of 2018, the FASB issued ASU 2018-15 to reduce diversity in practice by clarifying when implementation costs are required to be capitalized in a cloud computing arrangement that is a service contract. This guidance is effective for annual and interim periods beginning after December 15, 2019. The early adoption of this guidance on January 1, 2019 did not materially impact the Company's financial condition, results of operations, or liquidity.
Derivatives and Hedging, Inclusion of the Secured Overnight Financing Rate ("SOFR") Overnight Index Swap Rate as a Benchmark Interest Rate for Hedge Accounting Purposes: In October of 2018, the FASB issued ASU 2018-16 adding the overnight index swap rate based on the SOFR to the list of United States benchmark interest rates eligible for hedge accounting purposes. This guidance is effective for annual and interim periods beginning after December 15, 2018. The adoption of this guidance on January 1, 2019 did not materially impact the Company's financial condition, results of operations, or liquidity.
Accounting Pronouncements Pending Adoption
Measurement of Credit Losses on Financial Instruments: In June of 2016, the FASBFinancial Accounting Standards Board ("FASB") issued ASUAccounting Standard Update ("ASU") 2016-13 that will requirerequires entities to present financial assets measured at amortized cost at the net amount expected to be collected, considering an entity's current estimate of all expected credit losses. In addition, credit losses relating to available-for-sale debt securities will beare required to be recorded through an allowance for credit losses, with changes in credit loss estimates recognized through current earnings. This guidance is effective for annual and interim periods beginning after December 15, 2019. Early adoption is permitted, but not for periods beginning before December 15, 2018.
The Company will adoptadopted this guidance on January 1, 2020. Management is continuing its implementation efforts,2020, which are led by a cross-functional working group. Management isresulted in the processrecognition of determining$76.0 million of allowance for credit losses which includes $26.0 million attributable to loans, $5.6 million attributable to unfunded commitments, $35.7 million attributable to PCD loans, $8.5 million attributable to non-PCD acquired loans, and $220,000 attributable to securities held-to-maturity. The portion of the allowance for credit losses attributable to PCD loans did not have an impact on equity as the Company's financial condition, resultscredit-related portion of operations, liquidity, and regulatory capital ratios.acquisition adjustments on loans previously classified as PCI transitioned to PCD accounting treatment upon adoption. The extentamount of the impact will dependallowance for credit losses recognized upon adoption was based on the composition of the loan portfolio, as well as the economic conditions and forecasts as of the adoption date. The Company adopted this guidance using the modified retrospective approach which resulted in the recognition of a $26.8 million after-tax
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reduction to retained earnings as a cumulative-effect adjustment on January 1, 2020. Prior period amounts continue to be reported in accordance with previously applicable standards and the accounting policies described in the Company's 2019 10-K.
The Company has made the following elections upon adoption of ASU 2016-13:
•When determining the allowance and net carrying value amount for financial assets in which the repayment is expected to be provided substantially through the operation or sale of the collateral when the borrower is experiencing financial difficulty, the Company will use the fair value of collateral at the reporting date.
•The Company writes off uncollectible accrued interest in a timely manner and, therefore, will not measure an allowance for credit losses for accrued interest receivable.
•The Company uses a discounted cash flow approach for the majority of its applicable instruments. The change in the present value from one reporting period to the next may result from the passage of time, in addition to changes in estimates of the timing of the cash flows. The Company will report the entire change in the present value as provision for loan losses (or reversal of provision for loan losses) versus reporting the change related to the passage of time as interest income.
For additional discussion of the allowance for credit losses, see Note 7 "Past Due Loans, Allowance for Credit Losses, Non-Accrual Loans, and TDRs."
Accounting for Goodwill Impairment: In January of 2017, the FASB issued ASU 2017-04 that simplifies the accounting for goodwill impairment for all entities. The new guidance eliminates the requirement to calculate the implied fair value of goodwill using the second step of the quantitative two-step goodwill impairment model prescribed under current accounting guidance. Under the new guidance, if a reporting unit's carrying amount exceeds its fair value, an entity will record an impairment charge based on that difference. This guidance is effective for annual and interim goodwill impairment testing dates beginning after December 15, 2019. Early adoption is permitted for annual and interim goodwill impairment testing dates after January 1, 2017. Management does not expect theThe adoption of this guidance willon January 1, 2020 did not materially impact the Company's financial condition, results of operations, or liquidity.
Changes to the Disclosure Requirements for Fair Value Measurement: In August of 2018, the FASB issued ASU 2018-13 that eliminates, modifies, and adds to certain fair value measurement disclosure requirements associated with the three-tiered fair value hierarchy. This guidance is effective for annual and interim periods beginning after December 15, 2019. Early adoption is permitted. Management does not expect theThe adoption of this guidance willon January 1, 2020 did not materially impact the Company's financial condition, results of operations, or liquidity.
Loan Modifications Due to COVID-19: In March of 2020, the CARES Act was enacted by the U.S. government in response to the economic disruption caused by the COVID-19 pandemic (the "pandemic"). The Company's banking regulators issued a statement titled the "Interagency Statement on Loan Modifications by Financial Institutions Working with Customers Affected by the Coronavirus" that encourages financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations due to the effects of the pandemic. Additionally, the CARES Act provides that a qualified loan modification is exempt by law from classification as a TDR as defined by GAAP, from the period beginning March 1, 2020 until the earlier of December 31, 2020 or the date that is 60 days after the date on which the national emergency concerning the pandemic declared by the President of the United States terminates. Accordingly, the Company is offering short-term modifications made in response to the pandemic to borrowers who are current and otherwise not past due. These include short-term modifications in the form of payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. The total balance of loans with eligible modifications as of June 30, 2020 was $1.9 billion.
Regulatory Capital Delay of CECL Impact: In February of 2019, the federal bank regulatory agencies issued a final rule, the 2019 CECL Rule, that revised certain capital regulations to account for changes to credit loss accounting under U.S. GAAP. The 2019 CECL Rule included a transition option that allows banking organizations to phase in, over a three-year period, the day-one adverse effects of CECL on their regulatory capital ratios (three-year transition option). In March of 2020, the federal bank regulatory agencies issued an interim final rule that maintains the three year transition option of the 2019 CECL Rule and also provides banking organizations that were required under GAAP (as of January 2020) to implement CECL before the end of 2020 the option to delay for two years an estimate of the effect of CECL on regulatory capital, relative to the incurred loss methodology's effect on regulatory capital, followed by a three-year transition period (five-year transition option). The Company elected to adopt the five-year transition option. This election of the transition option is applicable only to regulatory capital computations under federal banking regulations and does not otherwise impact the financial statements prepared in accordance with GAAP.
Accounting Pronouncements Pending Adoption
Changes to the Disclosure Requirements for Defined Benefit Plans: In August of 2018, the FASB issued ASU 2018-14 that makes minor changes and clarifications to the disclosure requirements for entities that sponsor defined benefit plans. This guidance is effective for annual and interim periods beginning after December 15, 2020. Early adoption is permitted.
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Management does not expect the adoption of this guidance will materially impact the Company's financial condition, results of operations, or liquidity.
Income Taxes: In December of 2019, the FASB issued ASU 2019-12 that removes certain exceptions to the general principles of accounting for income taxes. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted. Management does not expect the adoption of this guidance will materially impact the Company's financial condition, results of operations, or liquidity.

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



3. ACQUISITIONS
Completed Acquisitions
Park Bank
On March 9, 2020, the Company completed its acquisition of Bankmanagers Corp. ("Bankmanagers"), the holding company for Park Bank, based in Milwaukee Wisconsin. At closing, the Company acquired $1.2 billion of assets, $1.0 billion of deposits, and $685.5 million of loans, net of fair value adjustments. Under the terms of the merger agreement, on March 9, 2020, each outstanding share of Bankmanagers common stock was exchanged for 29.9675 shares of Company common stock, plus $623.02 of cash (of which $346.00 per share was paid by Bankmanagers to its shareholders by a special cash dividend immediately prior to closing). This resulted in merger consideration of $174.4 million, which consisted of 4.9 million shares of Company common stock and $102.5 million of cash. Goodwill of $62.4 million associated with the acquisition was recorded by the Company. All Park Bank operating systems were converted to the Company's operating platform during the second quarter of 2020. The fair value adjustments, including goodwill, associated with the transaction remain preliminary and may change as the Company continues to finalize the fair value of the assets and liabilities acquired.
During the second quarter of 2020, the Company updated the fair value adjustments associated with the Bankmanagers transaction. These adjustments were recognized in the current period in accordance with accounting guidance applicable to business combinations.
Bridgeview Bancorp, Inc.Bank Group
On May 9, 2019, the Company completed its acquisition of Bridgeview Bancorp, Inc. ("Bridgeview"), the holding company for Bridgeview Bank Group. At closing, the Company acquired $1.2 billion of assets, $1.0 billion of deposits, and $709.9$709.4 million of loans, net of fair value adjustments. Under the terms of the merger agreement, on May 9, 2019, each outstanding share of Bridgeview common stock was exchanged for 0.2767 shares of Company common stock, plus $1.66 inof cash. In addition, each outstanding Bridgeview stock option was exchanged for the right to receive cash. This resulted in merger consideration of $135.4 million, which consisted of 4,728,5414.7 million shares of Company common stock and $37.1 million of cash. Goodwill of $57.4$63.2 million associated with the acquisition was recorded by the Company. All Bridgeview operating systems were converted to the Company's operating platform during the second quarter of 2019. The
During the second quarter of 2020, the Company finalized the fair value adjustments including goodwill, associated with thisthe Bridgeview transaction, remain preliminary and may change aswhich required measurement period adjustments to goodwill. These adjustments were recognized in the Company continuescurrent period in accordance with accounting guidance applicable to finalize the fair value of the assets and liabilities acquired.business combinations.
Northern Oak Wealth Management, Inc.
On January 16, 2019, the Company completed its acquisition of Northern Oak Wealth Management, Inc. ("Northern Oak"), a registered investment adviser based in Milwaukee, Wisconsin with approximately $800.0 million of assets under management at closing. The fair value adjustments, including goodwill, associated with this transaction remain preliminary and may change asDuring the first quarter of 2020, the Company continues to finalize the fair value of the assets and liabilities acquired.
Northern States Financial Corporation
On October 12, 2018, the Company completed its acquisition of Northern States Financial Corporation ("Northern States"), the holding company for NorStates Bank, based in Waukegan, Illinois. At closing, the Company acquired $578.7 million of assets, $463.2 million of deposits, and $284.9 million of loans, net of fair value adjustments. Under the terms of the merger agreement, on October 12, 2018, each outstanding share of Northern States common stock was exchanged for 0.0363 shares of Company common stock. This resulted in merger consideration of $83.3 million, which consisted of 3,310,912 shares of Company common stock. Goodwill of $30.1 million associated with the acquisition was recorded by the Company. All Northern States operating systems were converted to the Company's operating platform during the fourth quarter of 2018.
During the second quarter of 2019, the Company updatedfinalized the fair value adjustments associated with the Northern States transaction. The adjustments wereOak transaction, which required a measurement period adjustment to goodwill. This adjustment was recognized in the current period in accordance with accounting guidance applicable to business combinations. 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.

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The following table presents the assets acquired and liabilities assumed, net of the fair value adjustments, in the BridgeviewPark Bank and Northern StatesBridgeview transactions as of the acquisition date. The assets acquired and liabilities assumed, both intangible and tangible, were recorded at their estimated fair values as of the acquisition date and have been accounted for under the acquisition method of accounting.
Acquisition Activity
(Dollar amounts in thousands, except share and per share data)
  Bridgeview Northern States
  May 9, 2019 October 12, 2018
Assets    
Cash and due from banks and interest-bearing deposits in other banks $35,097
 $160,145
Equity securities 6,966
 3,915
Securities available-for-sale 263,695
 47,149
Securities held-to-maturity 13,426
 —
FHLB and FRB stock 1,481
 554
Loans 709,889
 284,924
OREO 6,237
 2,549
Investment in BOLI —
 11,104
Goodwill 57,377
 30,123
Other intangible assets 15,603
 12,230
Premises, furniture, and equipment 18,145
 5,964
Accrued interest receivable and other assets 33,724
 20,015
Total assets $1,161,640
 $578,672
Liabilities    
Noninterest-bearing deposits $179,267
 $346,714
Interest-bearing deposits 807,487
 116,446
Total deposits 986,754
 463,160
Borrowed funds 1,746
 18,218
Senior and subordinated debt 29,360
 8,038
Accrued interest payable and other liabilities 8,428
 5,953
Total liabilities 1,026,288
 495,369
Consideration Paid    
Common stock (2019 – 4,728,541, shares issued at $28.61 per share, 2018 –
  3,310,912, shares issued at $25.16 per share), net of issuance costs
 98,212
 83,303
Cash paid 37,140
 —
Total consideration paid 135,352
 83,303
  $1,161,640
 $578,672

Park BankBridgeview
March 9, 2020May 9, 2019
Assets
Cash and due from banks and interest-bearing deposits in other banks$244,781  $35,097  
Equity securities—  6,966  
Securities available-for-sale136,856  263,090  
Securities held-to-maturity300  13,426  
FHLB and FRB stock—  1,481  
Loans685,451  709,438  
OREO2,001  5,436  
Goodwill62,433  63,231  
Other intangible assets3,068  15,603  
Premises, furniture, and equipment2,550  16,138  
Accrued interest receivable and other assets13,796  35,909  
Total assets$1,151,236  $1,165,815  
Liabilities
Noninterest-bearing deposits$356,050  $179,267  
Interest-bearing deposits594,026  807,487  
Total deposits950,076  986,754  
Borrowed funds11,532  1,746  
Senior and subordinated debt—  29,360  
Accrued interest payable and other liabilities15,246  12,603  
Total liabilities976,854  1,030,463  
Consideration Paid
Common stock (2020 – 4,930,231, shares issued at $14.58 per share, 2019 –
  4,728,541, shares issued at $20.77 per share), net of issuance costs
71,883  98,212  
Cash paid102,499  37,140  
Total consideration paid174,382  135,352  
$1,151,236  $1,165,815  
Expenses related to the acquisition and integration of completed and pending transactions totaled $9.5 million and $13.2 million during the quarter and six months ended June 30, 2019, respectively, and are reported as a separate component within noninterest expense in the Condensed Consolidated Statements of Income. For the quarter and six months ended June 30, 2020, these expenses totaled $5.2 million and $10.7 million respectively, and for the same periods in 2019, these expenses totaled $9.5 million and $13.2 million, respectively.

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4. SECURITIES
The significant accounting policies related to securities are presented in Note 1, "Summary of Significant Accounting Policies" to the Consolidated Financial Statements in the Company's 20182019 10-K.
A summary of the Company's securities portfolio by category and maturity is presented in the following tables.
Securities Portfolio
(Dollar amounts in thousands)
 As of June 30, 2020As of December 31, 2019
 Amortized CostGross UnrealizedFair
Value		Amortized CostGross UnrealizedFair
Value
 GainsLossesGainsLosses
Securities Available-for-Sale      
U.S. treasury securities$20,992  $207  $—  $21,199  $33,939  $137  $(1) $34,075  
U.S. agency securities640,253  4,166  (1,372) 643,047  249,502  758  (1,836) 248,424  
Collateralized mortgage obligations
("CMOs")		1,624,609  49,059  (1,539) 1,672,129  1,547,805  14,893  (5,027) 1,557,671  
Other mortgage-backed securities
("MBSs")		695,218  20,159  (237) 715,140  678,804  7,728  (1,848) 684,684  
Municipal securities229,414  10,410  (21) 239,803  228,632  5,898  (99) 234,431  
Corporate debt securities143,639  2,367  (1,462) 144,544  112,797  1,791  (487) 114,101  
Total securities available-for-sale$3,354,125  $86,368  $(4,631) $3,435,862  $2,851,479  $31,205  $(9,298) $2,873,386  
Securities Held-to-Maturity       
Municipal securities$19,848  $48  $—  $19,896  $21,997  $—  $(763) $21,234  
Allowance for securities held-to-
  maturity(1)
(220) $(220) 
Total securities held-to-maturity,
net		$19,628  $48  $—  $19,676  
Equity Securities$43,954  $42,136  
  As of June 30, 2019 As of December 31, 2018
  Amortized Cost Gross Unrealized 
Fair
 Value
 Amortized Cost Gross Unrealized 
Fair
 Value
   Gains Losses   Gains Losses 
Securities Available-for-Sale              
U.S. treasury securities $42,946
 $162
 $(21) $43,087
 $37,925
 $17
 $(175) $37,767
U.S. agency securities 187,085
 813
 (660) 187,238
 144,125
 45
 (1,607) 142,563
Collateralized mortgage
  obligations ("CMOs")
 1,533,298
 19,111
 (2,681) 1,549,728
 1,336,531
 3,362
 (24,684) 1,315,209
Other mortgage-backed
  securities ("MBSs")
 666,454
 6,768
 (2,815) 670,407
 477,665
 520
 (11,251) 466,934
Municipal securities 234,028
 4,420
 (106) 238,342
 229,600
 461
 (2,874) 227,187
Corporate debt securities 104,427
 1,068
 (981) 104,514
 86,074
 —
 (3,725) 82,349
Total securities
  available-for-sale
 $2,768,238
 $32,342
 $(7,264) $2,793,316
 $2,311,920
 $4,405
 $(44,316) $2,272,009
Securities Held-to-Maturity              
Municipal securities $23,277
 $—
 $(872) $22,405
 $10,176
 $—
 $(305) $9,871
Equity Securities       $40,690
       $30,806
(1)
The allowance for securities held-to-maturity was established upon adoption of CECL on January 1, 2020.
Remaining Contractual Maturity of Securities
(Dollar amounts in thousands)
  As of June 30, 2019
  Available-for-Sale Held-to-Maturity
  
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
One year or less $133,657
 $134,761
 $8,736
 $8,409
After one year to five years 167,113
 168,493
 5,982
 5,758
After five years to ten years 267,707
 269,918
 5,531
 5,324
After ten years 9
 9
 3,028
 2,914
Securities that do not have a single contractual maturity date 2,199,752
 2,220,135
 —
 —
Total $2,768,238
 $2,793,316
 $23,277
 $22,405

The carrying value ofAccrued interest receivable on the securities available-for-sale that were pledged to secure deposits or for other purposes as permitted or required by lawportfolio totaled $1.5 billion$13.6 million and $11.3 million as of June 30, 20192020 and $1.2 billion as of December 31, 2018. No securities held-to-maturity were pledged as of June 30, 2019, or December 31, 2018.
During the quartersrespectively, and six months ended June 30, 2019is included in accrued interest receivable and 2018 there were no realized gains on securities available-for-sale. Certain securities acquiredother assets in the Bridgeview transaction in the second quarterConsolidated Statements of 2019 were sold shortly after the acquisition date for $93.3 million, resulting in no gains or losses as the securities were recorded at fair value upon acquisition.Financial Condition.
Accounting guidance requires that the credit portion of an OTTI chargea decline in fair value be recognized as an allowance for credit losses, established as a charge to expense through income. If a decline in fair value below carrying value is not attributable to credit deterioration and the Company does not intend to sell the security or believe it would not be more likely than not required to sell the security prior to recovery, the Company records the non-credit related portion of the decline in fair value in other comprehensive income (loss). In determining whether a decline in fair value of a security is credit related, the Company considers adverse conditions specific to the security, deterioration in economic conditions or market environment that may affect the value of the securities and related collateral, if any, events of default, changes to the credit rating of the security by a rating agency, and guarantees applicable to the security, among other factors.

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Remaining Contractual Maturity of Securities
(Dollar amounts in thousands)
 As of June 30, 2020
 Available-for-SaleHeld-to-Maturity
 Amortized
Cost		Fair
Value		Amortized
Cost		Fair
Value
One year or less$270,623  $274,363  $8,070  $8,089  
After one year to five years185,159  187,718  5,452  5,465  
After five years to ten years578,516  586,512  3,315  3,323  
After ten years—  —  2,791  2,799  
Securities that do not have a single contractual maturity date2,319,827  2,387,269  —  —  
Total$3,354,125  $3,435,862  $19,628  $19,676  
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 $1.5 billion as of June 30, 2020 and $1.3 billion as of December 31, 2019. NaN securities held-to-maturity were pledged as of June 30, 2020 or December 31, 2019.
There was no outstanding balancewere realized losses of OTTI previously recognized$1.0 million on securities available-for-sale as of eitherfor six months ended June 30, 2019 or December 31, 2018. During2020 and 0 realized gains (losses) for the quarters ended June 30, 2020 and 2019 and six months ended June 30, 2019 and 2018 no OTTI was recognized on securities available-for-sale.2019.
The following table presents the aggregate amount of unrealized losses and the aggregate related fair values of securities with unrealized losses as of June 30, 20192020 and December 31, 2018.2019.
Securities in an Unrealized Loss Position
(Dollar amounts in thousands)
    Less Than 12 Months 12 Months or Longer Total
  
Number of
Securities
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
As of June 30, 2019            
Securities Available-for-Sale            
U.S. treasury securities 5
 $—
 $—
 $13,982
 $21
 $13,982
 $21
U.S. agency securities 51
 186
 7
 82,022
 653
 82,208
 660
CMOs 108
 9,896
 31
 371,269
 2,650
 381,165
 2,681
MBSs 83
 21,325
 71
 250,402
 2,744
 271,727
 2,815
Municipal securities 57
 608
 8
 23,646
 98
 24,254
 106
Corporate debt securities 9
 11,032
 21
 29,134
 960
 40,166
 981
Total 313
 $43,047
 $138
 $770,455
 $7,126
 $813,502
 $7,264
Securities Held-to-Maturity            
Municipal securities 32
 $12,884
 $501
 $9,521
 $371
 $22,405
 $872
As of December 31, 2018              
Securities Available-for-Sale            
U.S. treasury securities 17
 $15,894
 $57
 $13,886
 $118
 $29,780
 $175
U.S. agency securities 74
 34,263
 320
 93,227
 1,287
 127,490
 1,607
CMOs 234
 171,901
 1,671
 863,747
 23,013
 1,035,648
 24,684
MBSs 118
 135,791
 1,715
 284,273
 9,536
 420,064
 11,251
Municipal securities 423
 60,863
 558
 109,935
 2,316
 170,798
 2,874
Corporate debt securities 16
 82,349
 3,725
 —
 —
 82,349
 3,725
Total 882
 $501,061
 $8,046
 $1,365,068
 $36,270
 $1,866,129
 $44,316
Securities Held-to-Maturity    
Municipal securities 5
 $—
 $—
 $9,871
 $305
 $9,871
 $305

  Less Than 12 Months12 Months or LongerTotal
 Number of
Securities		Fair
Value		Unrealized
Losses		Fair
Value		Unrealized
Losses		Fair
Value		Unrealized
Losses
As of June 30, 2020      
Securities Available-for-Sale
U.S. agency securities23  $73,659  $1,149  $13,927  $223  $87,586  $1,372  
CMOs41  139,578  1,379  33,967  160  173,545  1,539  
MBSs14  64,778  223  3,805  14  68,583  237  
Municipal securities1  1,745  21  —  —  1,745  21  
Corporate debt securities11  39,949  154  38,199  1,308  78,148  1,462  
Total90  $319,709  $2,926  $89,898  $1,705  $409,607  $4,631  
As of December 31, 2019       
Securities Available-for-Sale
U.S. treasury securities5  $4,966  $1  $—  $—  $4,966  $1  
U.S. agency securities52  97,729  1,200  49,387  636  147,116  1,836  
CMOs148  187,470  2,177  412,083  2,850  599,553  5,027  
MBSs59  66,340  996  121,861  852  188,201  1,848  
Municipal securities16  9,384  89  3,104  10  12,488  99  
Corporate debt securities6  9,719  281  21,955  206  31,674  487  
Total286  $375,608  $4,744  $608,390  $4,554  $983,998  $9,298  
Substantially all of the Company's CMOs and other MBSs are either backed by U.S. government-owned agencies or issued by U.S. government-sponsored enterprises. Municipal securities are issued by municipal authorities, and the majority are supported by third-party insurance or some other form of credit enhancement. Management does not believe any of these securities with unrealized losses as of June 30, 20192020 represent OTTIimpairment related to credit deterioration. These unrealized losses are attributed to changes in interest rates and temporary market movements. The Company does not intend to sell these securities and it is not more likely than not that the Company will be required to sell them before recovery of their amortized cost basis, which may be at maturity.

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5. LOANS
Loans Held-for-Investment
The following table presents the Company's loans held-for-investment by class.
Loan Portfolio
(Dollar amounts in thousands)
As of
 June 30,
2020		December 31,
2019
Commercial and industrial$4,789,556  $4,481,525  
Agricultural381,124  405,616  
Commercial real estate:  
Office, retail, and industrial2,020,318  1,848,718  
Multi-family874,861  856,553  
Construction687,063  593,093  
Other commercial real estate1,475,937  1,383,708  
Total commercial real estate5,058,179  4,682,072  
Total corporate loans, excluding Paycheck Protection Program ("PPP") loans10,228,859  9,569,213  
PPP loans1,179,403  —  
Total corporate loans11,408,262  9,569,213  
Home equity892,867  851,454  
1-4 family mortgages2,175,322  1,927,078  
Installment457,207  492,585  
Total consumer loans3,525,396  3,271,117  
Total loans$14,933,658  $12,840,330  
Deferred loan fees included in total loans$9,691  $7,972  
Overdrawn demand deposits included in total loans7,676  10,675  
  As of
  June 30,
2019		 December 31,
2018
Commercial and industrial $4,524,401
 $4,120,293
Agricultural 430,589
 430,928
Commercial real estate:    
Office, retail, and industrial 1,936,577
 1,820,917
Multi-family 787,155
 764,185
Construction 654,607
 649,337
Other commercial real estate 1,447,673
 1,361,810
Total commercial real estate 4,826,012
 4,596,249
Total corporate loans 9,781,002
 9,147,470
Home equity 874,686
 851,607
1-4 family mortgages 1,391,814
 1,017,181
Installment 472,102
 430,525
Total consumer loans 2,738,602
 2,299,313
Total loans $12,519,604
 $11,446,783
Deferred loan fees included in total loans $7,382
 $6,715
Overdrawn demand deposits included in total loans 8,875
 8,583

Accrued interest receivable on the loan portfolio totaled $49.5 million and $48.4 million as of June 30, 2020 and December 31, 2019, respectively and is included in accrued interest receivable and other assets in the Consolidated Statements of Financial Condition.
The Company primarily lends to community-based and mid-sized businesses, commercial real estate customers, and consumers in its markets. Within these areas, the Company diversifies its loan portfolio by loan type, industry, and borrower.
It is the Company's policy to review each prospective credit to determine the appropriateness and the adequacy of security or collateral prior to making a loan. In the event of borrower default, the Company seeks recovery in compliance with state lending laws, the Company's lending standards, and credit monitoring and remediation procedures. A discussion of risk characteristics relevant to each portfolio segment is presented in Note 5, "Loans" to the Consolidated Financial Statements in the Company's 20182019 10-K.

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Loan Sales
The following table presents loan sales and purchases for the quarters and six months ended June 30, 20192020 and 2018.2019.
Loan Sales and Purchases
(Dollar amounts in thousands)
 Quarters Ended 
 June 30,		Six Months Ended 
 June 30,
 2020201920202019
Corporate loan sales
Proceeds from sales$295  $2,178  $4,598  $5,376  
Less book value of loans sold289  2,132  4,477  5,248  
Net gains on corporate loan sales(1)
6  46  121  128  
1-4 family mortgage loan sales
Proceeds from sales173,251  95,408  292,410  154,191  
Less book value of loans sold168,656  93,473  285,301  150,928  
Net gains on 1-4 family mortgage loan sales(2)
4,595  1,935  7,109  3,263  
Total net gains on loan sales$4,601  $1,981  $7,230  $3,391  
Corporate loan purchases(3)
Commercial and industrial$22,894  $128,891  $168,716  $181,610  
Office, retail, and industrial—  1,711  —  1,711  
Construction3,258  1,432  3,897  2,266  
Other commercial real estate10,000  —  10,000  3,986  
Total corporate loan purchases$36,152  $132,034  $182,613  $189,573  
Consumer loan purchases
Home equity$—  $39,159  $144,967  $77,411  
1-4 family mortgages179,410  231,533  249,585  304,463  
Total consumer loan purchases$179,410  $270,692  $394,552  $381,874  
  Quarters Ended 
 June 30,		 Six Months Ended 
 June 30,
  2019 2018 2019 2018
Corporate loan sales        
Proceeds from sales $2,178
 $3,991
 $5,376
 $12,312
Less book value of loans sold 2,132
 3,861
 5,248
 11,984
Net gains on corporate loan sales(1)
 46
 130
 128
 328
1-4 family mortgage loan sales        
Proceeds from sales $95,408
 $65,715
 $154,191
 $130,900
Less book value of loans sold 93,473
 64,336
 150,928
 128,094
Net gains on 1-4 family mortgage loan sales(2)
 1,935
 1,379
 3,263
 2,806
Total net gains on loan sales $1,981
 $1,509
 $3,391
 $3,134
(1)
Net gains on corporate loan sales are included in other service charges, commissions, and fees in the Condensed Consolidated Statements of Income.
(1)
(2)Net gains on 1-4 family mortgage loan sales are included in mortgage banking income in the Condensed Consolidated Statements of Income.
(3)Consists of the Company's portion of loan participations purchased.
Net gains on corporate loan sales are included in other service charges, commissions, and fees in the Condensed Consolidated Statements of Income.
(2)
Net gains on 1-4 family mortgage loan sales are included in mortgage banking income in the Condensed Consolidated Statements of Income.
The Company retained servicing responsibilities for a portion of the 1-4 family mortgage loans sold and collects servicing fees equal to a percentage of the outstanding principal balance. For additional disclosure related to the Company's obligations resulting from the sale of certain 1-4 family mortgage loans, see Note 12,13, "Commitments, Guarantees, and Contingent Liabilities."

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6. ACQUIRED AND COVERED LOANS
The significant accounting policies related to acquired and covered loans, which are classified as PCIPCD and non-PCI,non-PCD at June 30, 2020, are presented in Note 1, "Summary of Significant Accounting Policies."
The following table presents the carrying amount of acquired and covered PCI and non-PCI loans as of June 30, 20192020 and December 31, 2018.2019.
Acquired and Covered Loans(1)(2)
(Dollar amounts in thousands)
 As of June 30, 2020As of December 31, 2019
 PCDNon-PCDTotalPCINon-PCITotal
Acquired loans$243,207  $1,516,157  $1,759,364  $167,183  $1,216,133  $1,383,316  
  As of June 30, 2019 As of December 31, 2018
  PCI Non-PCI Total PCI Non-PCI Total
Acquired loans $168,460
 $1,565,943
 $1,734,403
 $108,049
 $1,247,492
 $1,355,541
Covered loans 5,563
 4,166
 9,729
 5,819
 4,869
 10,688
Total acquired and covered loans $174,023
 $1,570,109
 $1,744,132
 $113,868
 $1,252,361
 $1,366,229
(1)
Included in loans in the Consolidated Statements of Financial Condition.
(1)
Included in loans in
(2)Prior to the adoption of CECL on January 1, 2020, loans that had evidence of credit deterioration since origination and for which it was probable at acquisition that the Company would not collect all contractually required principal and interest payments were classified as PCI.
The outstanding balance of PCD loans was $284.3 million as of June 30, 2020 and the Consolidated Statements of Financial Condition.
The outstanding balance of PCI loans was $251.8 million and $175.2$243.0 million as of June 30, 2019 and December 31, 2018, respectively.
Acquired non-PCI loans that are renewed are no longer classified as acquired loans. These loans totaled $490.0 million and $458.0 million as of June 30, 2019 and December 31, 2018, respectively.
In connection with the FDIC Agreements, the Company recorded an indemnification asset. The carrying value of the FDIC indemnification asset was $1.5 million and $2.1 million as of June 30, 2019 and December 31, 2018, respectively.
Changes in the accretable yield for acquired and covered PCI loans were as follows.
Changes in Accretable Yield
(Dollar amounts in thousands)2019.
20

  Quarters Ended 
 June 30,		 Six Months Ended 
 June 30,
  2019 2018 2019 2018
Beginning balances $39,535
 $36,543
 $43,725
 $32,957
Additions 16,037
 —
 16,037
 —
Accretion (3,670) (2,922) (7,871) (6,540)
Other(1)
 (1,017) 5,387
 (1,006) 12,591
Ending balance $50,885
 $39,008
 $50,885
 $39,008
Table of Contents
(1)


Increases represent a rise in the expected future cash flows to be collected over the remaining estimated life of the underlying portfolio, while decreases result from the resolution of certain loans occurring earlier than anticipated.
Total accretion on acquired and covered PCI and non-PCI loans for the quarters and six months ended June 30, 2020 and 2019 was $7.0 million and $13.9 million, respectively, and $10.3 million and $16.7 million, respectively, and $4.4 million and $9.6 million for the same periods in 2018.2019.

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7. PAST DUE LOANS, ALLOWANCE FOR CREDIT LOSSES, IMPAIREDNON-ACCRUAL LOANS, AND TDRS
Past Due and Non-accrual Loans
The following table presents an aging analysis of the Company's past due loans as of June 30, 20192020 and December 31, 2018.2019 with balances presented on an amortized cost basis. The aging is determined without regard to accrual status. The table also presents non-performing loans, consisting of non-accrual loans (the majority of which are past due) and loans 90 days or more past due and still accruing interest, as of each balance sheet date.
Aging Analysis of Past Due Loans and Non-performing Loans by Class(1)
(Dollar amounts in thousands)
 Aging Analysis (Accruing and Non-accrual)Non-performing Loans
 Current30-89 Days
Past Due		90 Days or
More Past
Due		Total
Past Due		Total
Loans		Non-
accrual		90 Days or More Past Due, Still Accruing Interest
As of June 30, 2020       
Commercial and industrial$4,750,932  $20,550  $18,074  $38,624  $4,789,556  $28,349  $1,090  
Agricultural373,910  —  7,214  7,214  381,124  8,494  —  
Commercial real estate:  
Office, retail, and industrial1,982,798  4,973  32,547  37,520  2,020,318  35,915  596  
Multi-family870,430  1,538  2,893  4,431  874,861  3,121  —  
Construction658,892  801  27,370  28,171  687,063  27,282  88  
Other commercial real estate1,458,874  5,145  11,918  17,063  1,475,937  18,372  25  
Total commercial real estate4,970,994  12,457  74,728  87,185  5,058,179  84,690  709  
Total corporate loans,
excluding PPP loans		10,095,836  33,007  100,016  133,023  10,228,859  121,533  1,799  
PPP loans1,179,403  —  —  —  1,179,403  —  —  
Total corporate loans11,275,239  33,007  100,016  133,023  11,408,262  121,533  1,799  
Home equity885,678  2,641  4,548  7,189  892,867  9,129  187  
1-4 family mortgages2,164,611  4,928  5,783  10,711  2,175,322  8,498  —  
Installment454,996  956  1,255  2,211  457,207  —  1,255  
Total consumer loans3,505,285  8,525  11,586  20,111  3,525,396  17,627  1,442  
Total loans$14,780,524  $41,532  $111,602  $153,134  $14,933,658  $139,160  $3,241  
As of December 31, 2019       
Commercial and industrial$4,455,381  $11,468  $14,676  $26,144  $4,481,525  $29,995  $2,207  
Agricultural398,676  850  6,090  6,940  405,616  5,954  358  
Commercial real estate:       
Office, retail, and industrial1,830,321  2,943  15,454  18,397  1,848,718  25,857  546  
Multi-family853,762  211  2,580  2,791  856,553  2,697  —  
Construction588,065  4,876  152  5,028  593,093  152  —  
Other commercial real estate1,377,678  3,233  2,797  6,030  1,383,708  4,729  529  
Total commercial real estate4,649,826  11,263  20,983  32,246  4,682,072  33,435  1,075  
Total corporate loans9,503,883  23,581  41,749  65,330  9,569,213  69,384  3,640  
Home equity841,908  4,992  4,554  9,546  851,454  8,443  146  
1-4 family mortgages1,917,648  5,452  3,978  9,430  1,927,078  4,442  1,203  
Installment491,406  1,167  12  1,179  492,585  —  12  
Total consumer loans3,250,962  11,611  8,544  20,155  3,271,117  12,885  1,361  
Total loans$12,754,845  $35,192  $50,293  $85,485  $12,840,330  $82,269  $5,001  
(1) Prior to the adoption of CECL on January 1, 2020, purchased credit impaired ("PCI") loans with an accretable yield were considered current and were not included in past due loan totals. In addition, PCI loans with an accretable yield were excluded from non-accrual loans. Subsequent to adoption, PCD loans, including those previously classified as PCI, are included in past due and non-accrual loan totals. In addition, an allowance for credit losses is established as of the acquisition date or upon the adoption of CECL for loans previously classified as PCI, as PCD loans are no longer recorded net of a credit-related acquisition adjustment.
  Aging Analysis (Accruing and Non-accrual)  Non-performing Loans
  
Current(1)
 
30-89 Days
Past Due
 
90 Days or
More Past
Due
 
Total
Past Due
 
Total
Loans
  
Non-
accrual
 90 Days or More Past Due, Still Accruing Interest
As of June 30, 2019               
Commercial and industrial $4,499,340
 $15,147
 $9,914
 $25,061
 $4,524,401
  $19,809
 $1,469
Agricultural 423,157
 5,561
 1,871
 7,432
 430,589
  6,712
 —
Commercial real estate:               
Office, retail, and industrial 1,917,718
 2,323
 16,536
 18,859
 1,936,577
  17,875
 152
Multi-family 781,811
 404
 4,940
 5,344
 787,155
  5,322
 —
Construction 651,343
 3,112
 152
 3,264
 654,607
  152
 —
Other commercial real estate 1,438,249
 7,840
 1,584
 9,424
 1,447,673
  3,982
 98
Total commercial real estate 4,789,121
 13,679
 23,212
 36,891
 4,826,012
  27,331
 250
Total corporate loans 9,711,618
 34,387
 34,997
 69,384
 9,781,002
  53,852
 1,719
Home equity 866,924
 5,243
 2,519
 7,762
 874,686
  5,839
 13
1-4 family mortgages 1,385,737
 4,397
 1,680
 6,077
 1,391,814
  3,786
 —
Installment 470,907
 312
 883
 1,195
 472,102
  —
 883
Total consumer loans 2,723,568
 9,952
 5,082
 15,034
 2,738,602
  9,625
 896
Total loans $12,435,186
 $44,339
 $40,079
 $84,418
 $12,519,604
  $63,477
 $2,615
As of December 31, 2018               
Commercial and industrial $4,085,164
 $8,832
 $26,297
 $35,129
 $4,120,293
  $33,507
 $422
Agricultural 428,357
 940
 1,631
 2,571
 430,928
  1,564
 101
Commercial real estate:               
Office, retail, and industrial 1,803,059
 8,209
 9,649
 17,858
 1,820,917
  6,510
 4,081
Multi-family 759,402
 1,487
 3,296
 4,783
 764,185
  3,107
 189
Construction 645,774
 3,419
 144
 3,563
 649,337
  144
 —
Other commercial real estate 1,353,442
 4,921
 3,447
 8,368
 1,361,810
  2,854
 2,197
Total commercial real estate 4,561,677
 18,036
 16,536
 34,572
 4,596,249
  12,615
 6,467
Total corporate loans 9,075,198
 27,808
 44,464
 72,272
 9,147,470
  47,686
 6,990
Home equity 843,217
 6,285
 2,105
 8,390
 851,607
  5,393
 104
1-4 family mortgages 1,009,925
 4,361
 2,895
 7,256
 1,017,181
  3,856
 1,147
Installment 428,836
 1,648
 41
 1,689
 430,525
  —
 41
Total consumer loans 2,281,978
 12,294
 5,041
 17,335
 2,299,313
  9,249
 1,292
Total loans $11,357,176
 $40,102
 $49,505
 $89,607
 $11,446,783
  $56,935
 $8,282
21

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

22



Table of Contents



Allowance for Credit Losses
The Company maintains an allowance for credit losses at a level deemed adequate by management to absorb estimated losses inherentexpected in the existing loan portfolio. See Note 1, "Summary of Significant Accounting Policies," for the accounting policy for the allowance for credit losses. A rollforward of the allowance for credit losses by portfolio segment for the quarters and six months ended June 30, 20192020 and 20182019 is presented in the table below. PPP loans are excluded from this table as there is no allowance for credit losses associated with these loans due to guarantees.
Allowance for Credit Losses by Portfolio Segment
(Dollar amounts in thousands)
 Commercial,
Industrial, and
Agricultural		Office,
Retail, and
Industrial		Multi-
family		ConstructionOther
Commercial
Real Estate		ConsumerAllowance for
Unfunded
Commitments		Total
Allowance for Credit Losses
Quarter Ended June 30, 2020       
Beginning balance$113,733  $25,856  $3,689  $11,297  $18,554  $46,819  $6,753  $226,701  
Allowance established
for acquired PCD
loans		378  —  —  —  —  —  872  1,250  
Charge-offs(5,673) (3,092) (9) (798) (31) (4,631) —  (14,234) 
Recoveries820  6  —  —  12  473  —  1,311  
Net charge-offs(4,853) (3,086) (9) (798) (19) (4,158) —  (12,923) 
Provision for loan
losses and other		14,719  1,671  1,631  1,023  3,327  10,278  —  32,649  
Ending balance$123,977  $24,441  $5,311  $11,522  $21,862  $52,939  $7,625  $247,677  
Quarter Ended June 30, 2019       
Beginning balance$64,685  $7,679  $2,216  $2,131  $4,930  $21,938  $1,200  $104,779  
Charge-offs(6,516) (1,605) —  —  (329) (2,974) —  (11,424) 
Recoveries1,258  151  —  10  45  619  —  2,083  
Net charge-offs(5,258) (1,454) —  10  (284) (2,355) —  (9,341) 
Provision for loan
losses and other		6,937  1,270  (57) (279) 351  3,269  —  11,491  
Ending balance$66,364  $7,495  $2,159  $1,862  $4,997  $22,852  $1,200  $106,929  
Six Months Ended June 30, 2020      
Beginning balance$62,830  $7,580  $2,950  $1,697  $6,408  $26,557  $1,200  $109,222  
Adjustment to apply
  recent accounting
  pronouncements(1)
20,159  11,686  397  10,300  11,427  16,235  5,553  75,757  
Allowance established
for acquired PCD
loans		12,640  2,003  —  —  —  39  872  15,554  
Charge-offs(12,739) (3,430) (19) (2,606) (339) (9,031) —  (28,164) 
Recoveries1,979  15  5  —  156  972  —  3,127  
Net charge-offs(10,760) (3,415) (14) (2,606) (183) (8,059) —  (25,037) 
Provision for loan
  losses and other		39,108  6,587  1,978  2,131  4,210  18,167  —  72,181  
Ending balance$123,977  $24,441  $5,311  $11,522  $21,862  $52,939  $7,625  $247,677  
Six Months Ended June 30, 2019      
Beginning balance$63,276  $7,900  $2,464  $2,173  $4,934  $21,472  $1,200  $103,419  
Charge-offs(12,967) (2,233) (340) (6) (539) (6,116) —  (22,201) 
Recoveries2,559  161  1  16  66  973  —  3,776  
Net charge-offs(10,408) (2,072) (339) 10  (473) (5,143) —  (18,425) 
Provision for loan
  losses and other		13,496  1,667  34  (321) 536  6,523  —  21,935  
Ending balance$66,364  $7,495  $2,159  $1,862  $4,997  $22,852  $1,200  $106,929  
  
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 June 30, 2019              
Beginning balance $64,685
 $7,679
 $2,216
 $2,131
 $4,930
 $21,938
 $1,200
 $104,779
Charge-offs (6,516) (1,605) —
 —
 (329) (2,974) —
 (11,424)
Recoveries 1,258
 151
 —
 10
 45
 619
 —
 2,083
Net charge-offs (5,258) (1,454) —
 10
 (284) (2,355) —
 (9,341)
Provision for loan
  losses and other
 6,937
 1,270
 (57) (279) 351
 3,269
 —
 11,491
Ending balance $66,364
 $7,495
 $2,159
 $1,862
 $4,997
 $22,852
 $1,200
 $106,929
Quarter Ended June 30, 2018              
Beginning balance $57,200
 $10,607
 $2,592
 $1,972
 $5,291
 $17,192
 $1,000
 $95,854
Charge-offs (8,662) (305) (4) —
 (1) (2,337) —
 (11,309)
Recoveries 753
 26
 —
 8
 359
 386
 —
 1,532
Net charge-offs (7,909) (279) (4) 8
 358
 (1,951) —
 (9,777)
Provision for loan
  losses and other
 10,752
 (1,266) (413) 144
 (1,018) 3,415
 —
 11,614
Ending balance $60,043
 $9,062
 $2,175
 $2,124
 $4,631
 $18,656
 $1,000
 $97,691
Six Months Ended June 30, 2019            
Beginning balance $63,276
 $7,900
 $2,464
 $2,173
 $4,934
 $21,472
 $1,200
 $103,419
Charge-offs (12,967) (2,233) (340) (6) (539) (6,116) —
 (22,201)
Recoveries 2,559
 161
 1
 16
 66
 973
 —
 3,776
Net charge-offs (10,408) (2,072) (339) 10
 (473) (5,143) —
 (18,425)
Provision for loan
  losses and other
 13,496
 1,667
 34
 (321) 536
 6,523
 —
 21,935
Ending balance $66,364
 $7,495
 $2,159
 $1,862
 $4,997
 $22,852
 $1,200
 $106,929
Six Months Ended June 30, 2018            
Beginning balance $55,791
 $10,996
 $2,534
 $3,481
 $6,381
 $16,546
 $1,000
 $96,729
Charge-offs (23,332) (766) (4) —
 (70) (4,222) —
 (28,394)
Recoveries 1,291
 123
 —
 21
 398
 728
 —
 2,561
Net charge-offs (22,041) (643) (4) 21
 328
 (3,494) —
 (25,833)
Provision for loan
  losses and other
 26,293
 (1,291) (355) (1,378) (2,078) 5,604
 —
 26,795
Ending balance $60,043
 $9,062
 $2,175
 $2,124
 $4,631
 $18,656
 $1,000
 $97,691
(1) As a result of accounting guidance adopted in the first quarter of 2020, the increase in allowance for credit losses, net of tax, was recognized as a cumulative-effect adjustment to retained earnings as of January 1, 2020. For further discussion of this guidance, see Note 2, "Recent Accounting Pronouncements and Other Guidance."
22

Table of Contents




23



Table of Contents



The allowance for credit losses increased from December 31, 2019 primarily due to the adoption of CECL and the estimated impact of the pandemic on the allowance for credit losses, which considers multiple macroeconomic scenarios of stressed GDP, unemployment, and housing price index, detailed portfolio reviews of elevated risk sectors, and the effects of governmental responses to the pandemic.
The table below provides a breakdown of loans and the related allowance for credit losses by portfolio segment as of June 30, 20192020 and December 31, 2018.2019.
Loans and Related Allowance for Credit Losses by Portfolio Segment
(Dollar amounts in thousands)
 LoansAllowance for Credit Losses
 Individually
Evaluated		Collectively
Evaluated
PCD/PCI(1)
TotalIndividually
Evaluated		Collectively
Evaluated
PCD/PCI(1)
Total
As of June 30, 2020        
Commercial, industrial,
 agricultural		$25,190  $5,049,876  $95,614  $5,170,680  $4,805  $102,735  $16,437  $123,977  
Commercial real estate:       
Office, retail, and industrial25,165  1,956,597  38,556  2,020,318  885  14,964  8,592  24,441  
Multi-family1,785  871,545  1,531  874,861  —  5,126  185  5,311  
Construction18,611  646,355  22,097  687,063  —  4,624  6,898  11,522  
Other commercial real estate3,806  1,410,080  62,051  1,475,937  44  10,332  11,486  21,862  
Total commercial real estate49,367  4,884,577  124,235  5,058,179  929  35,046  27,161  63,136  
Total corporate loans,
excluding PPP loans		74,557  9,934,453  219,849  10,228,859  5,734  137,781  43,598  187,113  
PPP loans—  1,179,403  —  1,179,403  —  —  —  —  
Total corporate loans74,557  11,113,856  219,849  11,408,262  5,734  137,781  43,598  187,113  
Consumer23  3,502,015  23,358  3,525,396  —  52,103  836  52,939  
Allowance for unfunded
commitments		—  —  —  —  —  7,625  —  7,625  
Total loans$74,580  $14,615,871  $243,207  $14,933,658  $5,734  $197,509  $44,434  $247,677  
As of December 31, 2019        
Commercial, industrial, and
  agricultural		$34,142  $4,807,114  $45,885  $4,887,141  $3,414  $59,108  $308  $62,830  
Commercial real estate:        
Office, retail, and industrial24,820  1,795,557  28,341  1,848,718  578  6,899  103  7,580  
Multi-family1,995  851,857  2,701  856,553  —  2,854  96  2,950  
Construction123  581,747  11,223  593,093  —  1,681  16  1,697  
Other commercial real estate3,241  1,323,635  56,832  1,383,708  —  4,867  1,541  6,408  
Total commercial real estate30,179  4,552,796  99,097  4,682,072  578  16,301  1,756  18,635  
Total corporate loans64,321  9,359,910  144,982  9,569,213  3,992  75,409  2,064  81,465  
Consumer—  3,248,916  22,201  3,271,117  —  25,424  1,133  26,557  
Allowance for unfunded
commitments		—  —  —  —  —  1,200  —  1,200  
Total loans$64,321  $12,608,826  $167,183  $12,840,330  $3,992  $102,033  $3,197  $109,222  
  Loans Allowance for Credit Losses
  
Individually
Evaluated
for
Impairment
 
Collectively
Evaluated
for
Impairment
 PCI Total 
Individually
Evaluated
for
Impairment
 
Collectively
Evaluated
for
Impairment
 PCI Total
As of June 30, 2019                
Commercial, industrial, and
  agricultural
 $23,549
 $4,878,817
 $52,624
 $4,954,990
 $2,000
 $64,024
 $340
 $66,364
Commercial real estate:                
Office, retail, and industrial 15,291
 1,907,604
 13,682
 1,936,577
 67
 6,473
 955
 7,495
Multi-family 5,161
 775,648
 6,346
 787,155
 —
 2,064
 95
 2,159
Construction 123
 645,235
 9,249
 654,607
 —
 1,777
 85
 1,862
Other commercial real estate 3,334
 1,375,786
 68,553
 1,447,673
 —
 4,258
 739
 4,997
Total commercial real estate 23,909
 4,704,273
 97,830
 4,826,012
 67
 14,572
 1,874
 16,513
Total corporate loans 47,458
 9,583,090
 150,454
 9,781,002
 2,067
 78,596
 2,214
 82,877
Consumer —
 2,715,033
 23,569
 2,738,602
 —
 21,756
 1,096
 22,852
Reserve for unfunded
  commitments
 —
 —
 —
 —
 —
 1,200
 —
 1,200
Total loans $47,458
 $12,298,123
 $174,023
 $12,519,604
 $2,067
 $101,552
 $3,310
 $106,929
As of December 31, 2018                
Commercial, industrial, and
  agricultural
 $32,415
 $4,514,349
 $4,457
 $4,551,221
 $3,961
 $58,947
 $368
 $63,276
Commercial real estate:                
Office, retail, and industrial 5,057
 1,799,304
 16,556
 1,820,917
 748
 5,984
 1,168
 7,900
Multi-family 3,492
 747,030
 13,663
 764,185
 —
 2,154
 310
 2,464
Construction —
 644,499
 4,838
 649,337
 —
 2,019
 154
 2,173
Other commercial real estate 1,545
 1,305,444
 54,821
 1,361,810
 —
 4,180
 754
 4,934
Total commercial real estate 10,094
 4,496,277
 89,878
 4,596,249
 748
 14,337
 2,386
 17,471
Total corporate loans 42,509
 9,010,626
 94,335
 9,147,470
 4,709
 73,284
 2,754
 80,747
Consumer —
 2,279,780
 19,533
 2,299,313
 —
 20,094
 1,378
 21,472
Reserve for unfunded
  commitments
 —
 —
 —
 —
 —
 1,200
 —
 1,200
Total loans $42,509
 $11,290,406
 $113,868
 $11,446,783
 $4,709
 $94,578
 $4,132
 $103,419
(1)Prior to the adoption of CECL on January 1, 2020, loans that had evidence of credit deterioration since origination and for which it was probable at acquisition that the Company would not collect all contractually required principal and interest payments were classified as PCI.
23



24The following table presents collateral-dependent loans, including PCD loans, without regard to accrual status by primary collateral type and non-accrual loans with no related allowance as of June 30, 2020. PPP loans are excluded from this table as there is no allowance for credit losses associated with these loans due to guarantees.

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


(Dollar amounts in thousands)
Table of Contents



Type of CollateralNon-accrual Loans
With No Related
Allowance
Real
Estate		Blanket
Lien		Equipment
Commercial and industrial$6,870  $45,235  $3,169  $6,338  
Agricultural3,417  4,719  —  4,485  
Commercial real estate:
Office, retail, and industrial44,538  —  —  17,293  
Multi-family2,606  —  —  1,785  
Construction28,779  —  —  19,043  
Other commercial real estate33,845  —  —  11,789  
Total commercial real estate109,768  —  —  49,910  
Total corporate loans120,055  49,954  3,169  60,733  
Home equity244  —  —  123  
1-4 family mortgages2,665  —  —  527  
Installment—  —  —  —  
Total consumer loans2,909  —  —  650  
Total loans$122,964  $49,954  $3,169  $61,383  
Loans Individually Evaluated for Impairment
The following table presents loans individually evaluated for impairment by class of loan as of June 30, 20192020 and December 31, 2018.2019. PCD and PCI loans are excluded from this disclosure.
Impaired Loans Individually Evaluated by Class
(Dollar amounts in thousands)
  As of June 30, 2019  As of December 31, 2018
  Recorded Investment In    Recorded Investment In  
  
Loans with
No Specific
Reserve
 
Loans with
a Specific
Reserve
 
Unpaid
Principal
Balance
 
Specific
Reserve
  
Loans with
No Specific
Reserve
 
Loans with
a Specific
Reserve
 
Unpaid
Principal
Balance
 
Specific
Reserve
Commercial and industrial $13,578
 $3,503
 $37,779
 $670
  $7,550
 $23,349
 $49,102
 $3,960
Agricultural 1,156
 5,312
 9,565
 1,330
  1,318
 198
 3,997
 1
Commercial real estate:                 
Office, retail, and industrial 14,335
 956
 16,274
 67
  1,861
 3,196
 6,141
 748
Multi-family 5,161
 —
 5,497
 —
  3,492
 —
 3,492
 —
Construction 123
 —
 123
 —
  —
 —
 —
 —
Other commercial real estate 3,334
 —
 3,492
 —
  1,545
 —
 1,612
 —
Total commercial real estate 22,953
 956
 25,386
 67
  6,898
 3,196
 11,245
 748
Total impaired loans
  individually evaluated for
  impairment
 $37,687
 $9,771
 $72,730
 $2,067
  $15,766
 $26,743
 $64,344
 $4,709

 As of June 30, 2020As of December 31, 2019
 Recorded Investment In Recorded Investment In 
 Loans with
No Specific
Allowance		Loans with
a Specific
Allowance		Unpaid
Principal
Balance		Specific
Allowance		Loans with
No Specific
Allowance		Loans with
a Specific
Allowance		Unpaid
Principal
Balance		Specific
Allowance
Commercial and industrial$4,884  $12,170  $37,153  $3,018  $12,885  $15,516  $52,559  $2,456  
Agricultural4,485  3,651  13,032  1,787  1,889  3,852  9,293  958  
Commercial real estate:        
Office, retail, and industrial15,839  9,326  28,730  885  14,111  10,709  37,007  578  
Multi-family1,785  —  1,785  —  1,995  —  1,995  —  
Construction18,611  —  18,611  —  123  —  123  —  
Other commercial real estate3,357  449  4,103  44  3,241  —  3,495  —  
Total commercial real estate39,592  9,775  53,229  929  19,470  10,709  42,620  578  
Total corporate loans48,961  25,596  103,414  5,734  34,244  30,077  104,472  3,992  
Consumer23  —  23  —  —  —  —  —  
Total non-accrual loans
individually evaluated		$48,984  $25,596  $103,437  $5,734  $34,244  $30,077  $104,472  $3,992  

25



Table of Contents



The following table presents the average recorded investment and interestInterest income recognized on impairednon-accrual loans by classusing the cash basis of accounting for the quarters ended and six months ended June 30, 2020 and 2019 was $110,000 and 2018. PCI loans are excluded from this disclosure.
Average Recorded Investment$388,000, respectively, and Interest Income Recognized on Impaired Loans by Class
(Dollar amounts$69,000 and $148,000 for the same periods in thousands)2019.
24
  Quarters Ended June 30,
  2019 2018
  Average
Recorded
Investment		 
Interest
Income
Recognized(1)
 Average
Recorded
Investment		 
Interest
Income
Recognized(1)
Commercial and industrial $24,530
 $10
 $31,787
 $14
Agricultural 4,292
 11
 3,386
 25
Commercial real estate:        
Office, retail, and industrial 15,567
 1
 9,509
 656
Multi-family 4,169
 —
 2,166
 48
Construction 62
 —
 —
 —
Other commercial real estate 2,433
 26
 2,694
 61
Total commercial real estate 22,231
 27
 14,369
 765
Total impaired loans $51,053
 $48
 $49,542
 $804
         
  Six Months Ended June 30,
  2019 2018
  Average
Recorded
Investment		 
Interest
Income
Recognized(1)
 Average
Recorded
Investment		 
Interest
Income
Recognized(1)
Commercial and industrial $26,653
 $26
 $34,097
 $36
Agricultural 3,366
 11
 2,257
 25
Commercial real estate:        
Office, retail, and industrial 12,063
 4
 9,942
 768
Multi-family 3,943
 —
 1,651
 55
Construction 41
 —
 —
 —
Other commercial real estate 2,137
 42
 2,285
 113
Total commercial real estate 18,184
 46
 13,878
 936
Total impaired loans $48,203
 $83
 $50,232
 $997
(1)
Recorded using the cash basis of accounting.

26



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. at least annually or more often if events or circumstances arise that could impact the rating. The following tables present credit quality indicators for corporate and consumer loans on an amortized cost basis as of June 30, 2020 and net loan charge-offs for the six months ended June 30, 2020. PPP loans are excluded from this table as there is no allowance for credit losses associated with these loans due to guarantees.
Corporate Loan Portfolio by Origination Year
(Dollar amounts in thousands)
 
2020(1)
2019201820172016Prior
Revolving
Loans
Total
Commercial, industrial, agricultural:    
Pass$461,644  $887,292  $924,776  $519,875  $238,751  $469,442  $1,364,316  $4,866,096  
Special Mention(2)
3,508  6,520  31,435  4,676  8,527  17,568  80,597  152,831  
Substandard(3)
384  4,376  26,729  17,862  16,583  15,804  33,172  114,910  
Non-accrual(4)
—  1,771  2,381  8,505  4,806  6,682  12,698  36,843  
Total commercial,
industrial,
agricultural		$465,536  $899,959  $985,321  $550,918  $268,667  $509,496  $1,490,783  $5,170,680  
Commercial, industrial,
agricultural, net loan
charge-offs		$—  $250  $946  $1,058  $617  $1,853  $6,036  $10,760  
Office, retail, and industrial:
Pass$95,291  $266,479  $225,938  $348,121  $302,430  $677,880  $5,491  $1,921,630  
Special Mention(2)
1,173  655  3,280  5,091  15,439  12,914  —  38,552  
Substandard(3)
—  —  —  337  1,514  22,370  —  24,221  
Non-accrual(4)
—  —  132  —  10,238  25,545  —  35,915  
Total office, retail,
and industrial		$96,464  $267,134  $229,350  $353,549  $329,621  $738,709  $5,491  $2,020,318  
Office, retail, and
industrial net loan
charge-offs		$—  $333  $156  $—  $1,628  $1,298  $—  $3,415  
Multi-family:
Pass$125,328  $174,802  $84,791  $101,492  $101,846  $239,713  $36,111  $864,083  
Special Mention(2)
—  —  —  —  358  1,416  —  1,774  
Substandard(3)
—  —  387  81  —  5,415  —  5,883  
Non-accrual(4)
—  —  —  1,785  237  1,099  —  3,121  
Total multi-family$125,328  $174,802  $85,178  $103,358  $102,441  $247,643  $36,111  $874,861  
Multi-family net loan
charge-offs		$—  $3  $—  $1  $—  $10  $—  $14  
Construction:
Pass$33,890  $151,849  $171,480  $101,781  $71,001  $70,950  $33,016  $633,967  
Special Mention(2)
—  —  45  3,032  14,221  1,228  —  18,526  
Substandard(3)
—  —  —  —  —  7,288  —  7,288  
Non-accrual(4)
—  —  —  —  —  25,591  1,691  27,282  
Total construction$33,890  $151,849  $171,525  $104,813  $85,222  $105,057  $34,707  $687,063  
Construction net loan
charge-offs		$—  $118  $—  $798  $—  $1,690  $—  $2,606  
Other commercial real estate:
Pass$61,056  $195,768  $269,526  $226,064  $125,249  $466,436  $27,553  $1,371,652  
Special Mention(2)
—  3,532  7,589  6,887  11,219  15,463  —  44,690  
Substandard(3)
—  —  —  1,400  4,224  35,599  —  41,223  
Non-accrual(4)
—  —  674  4,150  1,078  12,377  93  18,372  
Total other
commercial real
estate		$61,056  $199,300  $277,789  $238,501  $141,770  $529,875  $27,646  $1,475,937  
Other commercial real
estate net loan charge-
offs		$—  $38  $1  $—  $183  $(39) $—  $183  
(1)Represents year-to-date loans originated during 2020.
(2)Loans categorized as special mention exhibit potential weaknesses that require the close attention of management since these potential weaknesses may result in the deterioration of repayment prospects in the future.
(3)Loans categorized as substandard exhibit well-defined weaknesses that may jeopardize the liquidation of the debt. These loans continue to accrue interest because they are well-secured, and collection of principal and interest is expected within a reasonable time.
(4)Loans categorized as non-accrual exhibit well-defined weaknesses that may jeopardize the liquidation of the debt or result in a loss if the deficiencies are not corrected.
25



Consumer Loan Portfolio by Origination Year
(Dollar amounts in thousands)
 
2020(1)
2019201820172016Prior
Revolving
Loans
Total
Home equity:     
Performing$8,231  $48,696  $27,783  $13,809  $11,878  $57,053  $716,288  $883,738  
Non-accrual—  22  125  264  482  6,801  1,435  9,129  
Total home equity$8,231  $48,718  $27,908  $14,073  $12,360  $63,854  $717,723  $892,867  
Home equity net
loan charge-offs		$—  $—  $1  $—  $1  $42  $(14) $30  
1-4 family mortgages:
Performing$597,506  $676,898  $311,884  $158,230  $181,912  $240,394  $—  $2,166,824  
Non-accrual—  —  438  83  63  7,914  —  8,498  
Total 1-4 family
mortgages		$597,506  $676,898  $312,322  $158,313  $181,975  $248,308  $—  $2,175,322  
1-4 family mortgages
net loan charge-offs		$—  $—  $4  $—  $7  $735  $—  $746  
Installment:
Performing$59,971  $185,919  $107,220  $45,108  $17,563  $20,662  $20,764  $457,207  
Non-accrual—  —  —  —  —  —  —  —  
Total installment$59,971  $185,919  $107,220  $45,108  $17,563  $20,662  $20,764  $457,207  
Installment net loan
charge-offs		$44  $3,757  $2,200  $775  $85  $393  $29  $7,283  
(1)Represents year-to-date loans originated during 2020.
During the quarter and six months ended June 30, 2020, $16.8 million and $23.8 million, respectively, of revolving loans converted to term loans.
The following tables present credit quality indicators by class for corporate and consumer loans on an amortized cost basis as of June 30, 2019 and December 31, 2018.2019.
Corporate Credit Quality Indicators by Class
(Dollar amounts in thousands)
Pass
Special
Mention(1)
Substandard(2)
Non-accrual(3)
Total
As of December 31, 2019     
Commercial and industrial$4,324,709  $47,665  $79,156  $29,995  $4,481,525  
Agricultural350,827  32,764  16,071  5,954  405,616  
Commercial real estate:     
Office, retail, and industrial1,747,287  42,230  33,344  25,857  1,848,718  
Multi-family839,615  8,279  5,962  2,697  856,553  
Construction564,495  17,977  10,469  152  593,093  
Other commercial real estate1,295,155  39,788  44,036  4,729  1,383,708  
Total commercial real estate4,446,552  108,274  93,811  33,435  4,682,072  
Total corporate loans$9,122,088  $188,703  $189,038  $69,384  $9,569,213  
(1)Loans categorized as special mention exhibit potential weaknesses that require the close attention of management since these potential weaknesses may result in the deterioration of repayment prospects in the future.
(2)Loans categorized as substandard exhibit a well-defined weakness that may jeopardize the liquidation of the debt. These loans continue to accrue interest because they are well-secured and collection of principal and interest is expected within a reasonable time.
(3)Loans categorized as non-accrual exhibit a well-defined weakness that may jeopardize the liquidation of the debt or result in a loss if the deficiencies are not corrected.
26

  Pass 
Special
 Mention(1)(4)
 
Substandard(2)(4)
 
Non-accrual(3)
 Total
As of June 30, 2019          
Commercial and industrial $4,326,163
 $74,221
 $104,208
 $19,809
 $4,524,401
Agricultural 383,404
 23,834
 16,639
 6,712
 430,589
Commercial real estate:          
Office, retail, and industrial 1,833,410
 41,134
 44,158
 17,875
 1,936,577
Multi-family 765,375
 10,385
 6,073
 5,322
 787,155
Construction 632,922
 12,591
 8,942
 152
 654,607
Other commercial real estate 1,375,902
 29,009
 38,780
 3,982
 1,447,673
Total commercial real estate 4,607,609
 93,119
 97,953
 27,331
 4,826,012
Total corporate loans $9,317,176
 $191,174
 $218,800
 $53,852
 $9,781,002
As of December 31, 2018          
Commercial and industrial $3,952,066
 $74,878
 $59,842
 $33,507
 $4,120,293
Agricultural 407,542
 10,070
 11,752
 1,564
 430,928
Commercial real estate:          
Office, retail, and industrial 1,735,426
 35,853
 43,128
 6,510
 1,820,917
Multi-family 745,131
 9,273
 6,674
 3,107
 764,185
Construction 624,446
 16,370
 8,377
 144
 649,337
Other commercial real estate 1,294,128
 47,736
 17,092
 2,854
 1,361,810
Total commercial real estate 4,399,131
 109,232
 75,271
 12,615
 4,596,249
Total corporate loans $8,758,739
 $194,180
 $146,865
 $47,686
 $9,147,470
(1)


Loans categorized as special mention exhibit potential weaknesses that require the close attention of management since these potential weaknesses may result in the deterioration of repayment prospects in the future.
(2)
Loans categorized as substandard exhibit well-defined weaknesses that may jeopardize the liquidation of the debt. These loans continue to accrue interest because they are well-secured, and collection of principal and interest is expected within a reasonable time.
(3)
Loans categorized as non-accrual exhibit well-defined weaknesses that may jeopardize the liquidation of the debt or result in a loss if the deficiencies are not corrected.
(4)
Total special mention and substandard loans includes accruing TDRs of $236,000 as of June 30, 2019 and $630,000 as of December 31, 2018.
Consumer Credit Quality Indicators by Class
(Dollar amounts in thousands)
  Performing Non-accrual Total
As of June 30, 2019      
Home equity $868,847
 $5,839
 $874,686
1-4 family mortgages 1,388,028
 3,786
 1,391,814
Installment 472,102
 —
 472,102
Total consumer loans $2,728,977
 $9,625
 $2,738,602
As of December 31, 2018      
Home equity $846,214
 $5,393
 $851,607
1-4 family mortgages 1,013,325
 3,856
 1,017,181
Installment 430,525
 —
 430,525
Total consumer loans $2,290,064
 $9,249
 $2,299,313


27



PerformingNon-accrualTotal
As of December 31, 2019   
Home equity$843,011  $8,443  $851,454  
1-4 family mortgages1,922,636  4,442  1,927,078  
Installment492,585  —  492,585  
Total consumer loans$3,258,232  $12,885  $3,271,117  
TDRs
TDRs are generally performed at the request of the individual borrower and may include forgiveness of principal, reduction in interest rates, changes in payments, and maturity date extensions. The table below presents TDRs by class as of June 30, 20192020 and December 31, 2018.2019. See Note 1, "Summary of Significant Accounting Policies," for the accounting policy for TDRs.
TDRs by Class
(Dollar amounts in thousands)
 As of June 30, 2020As of December 31, 2019
 Accruing
Non-accrual(1)
TotalAccruing
Non-accrual(1)
Total
Commercial and industrial$188  $9,336  $9,524  $227  $16,420  $16,647  
Agricultural—  —  —  —  —  —  
Commercial real estate:      
Office, retail, and industrial—  2,340  2,340  —  3,600  3,600  
Multi-family160  —  160  163  —  163  
Construction—  —  —  —  —  —  
Other commercial real estate198  —  198  170  —  170  
Total commercial real estate358  2,340  2,698  333  3,600  3,933  
Total corporate loans546  11,676  12,222  560  20,020  20,580  
Home equity31  179  210  36  240  276  
1-4 family mortgages624  238  862  637  —  637  
Installment—  —  —  —  254  254  
Total consumer loans655  417  1,072  673  494  1,167  
Total loans$1,201  $12,093  $13,294  $1,233  $20,514  $21,747  
  As of June 30, 2019 As of December 31, 2018
  Accruing 
Non-accrual(1)
 Total Accruing 
Non-accrual(1)
 Total
Commercial and industrial $236
 $6,928
 $7,164
 $246
 $5,994
 $6,240
Agricultural —
 —
 —
 —
 —
 —
Commercial real estate:            
Office, retail, and industrial —
 383
 383
 —
 —
 —
Multi-family 167
 —
 167
 557
 —
 557
Construction —
 —
 —
 —
 —
 —
Other commercial real estate 176
 —
 176
 181
 —
 181
Total commercial real estate 343
 383
 726
 738
 —
 738
Total corporate loans 579
 7,311
 7,890
 984
 5,994
 6,978
Home equity 109
 257
 366
 113
 327
 440
1-4 family mortgages 753
 273
 1,026
 769
 291
 1,060
Installment —
 —
 —
 —
 —
 —
Total consumer loans 862
 530
 1,392
 882
 618
 1,500
Total loans $1,441
 $7,841
 $9,282
 $1,866
 $6,612
 $8,478
(1)(1)These TDRs are included in non-accrual loans in the preceding tables.
These TDRs are included in non-accrual loans in the preceding tables.
TDRs are included in the calculation of the allowance for credit losses in the same manner as impairednon-accrual loans. As of June 30, 2020 and December 31, 2019, there were $670,000$2.4 million and $2.2 million of specific reservesallowances, respectively, related to TDRs. There were no specific reserves related to TDRs as of December 31, 2018.
There were no material restructurings during the quarters and six months ended June 30, 20192020 and 2018.2019.
Accruing TDRs that do not perform in accordance with their modified terms are transferred to non-accrual. There were no material TDRs that defaulted within twelve months of the restructure date during the quarters and six months ended June 30, 20192020 and 2018.

2019.
28
27



Table of Contents



A rollforward of the carrying value of TDRs for the quarters and six months ended June 30, 20192020 and 20182019 is presented in the following table.
TDR Rollforward
(Dollar amounts in thousands)
  Quarters Ended 
 June 30,		 Six Months Ended 
 June 30,
  2019 2018 2019 2018
Accruing        
Beginning balance $1,844
 $1,778
 $1,866
 $1,796
Additions —
 —
 12
 —
Net payments (20) (18) (54) (36)
Net transfers to non-accrual (383) —
 (383) —
Ending balance 1,441
 1,760
 1,441
 1,760
Non-accrual        
Beginning balance 9,375
 20,466
 6,612
 24,533
Additions —
 —
 —
 355
Net advances (payments) (1,447) (9,865) 1,474
 (12,978)
Charge-offs (470) (2,363) (628) (3,672)
Net transfers from accruing 383
 —
 383
 —
Ending balance 7,841
 8,238
 7,841
 8,238
Total TDRs $9,282
 $9,998
 $9,282
 $9,998

Quarters Ended 
 June 30,		Six Months Ended 
 June 30,
2020201920202019
Accruing
Beginning balance$1,216  $1,844  $1,233  $1,866  
Additions—  —  —  12  
Net payments(15) (20) (32) (54) 
Net transfers to non-accrual—  (383) —  (383) 
Ending balance1,201  1,441  1,201  1,441  
Non-accrual
Beginning balance17,917  9,375  20,514  6,612  
Additions—  —  934  —  
Net (payments) advances(2,595) (1,447) (3,253) 1,474  
Charge-offs(3,229) (470) (6,102) (628) 
Net transfers from accruing—  383  —  383  
Ending balance12,093  7,841  12,093  7,841  
Total TDRs$13,294  $9,282  $13,294  $9,282  
There were $1.9 million$813,000 and $3.8 million$530,000 of commitments to lend additional funds to borrowers with TDRs as of June 30, 20192020 and December 31, 2018,2019, respectively.

28
29



8. LEASE OBLIGATIONS
The Company has the right to utilize certain premises under non-cancelable operating leases with varying maturity dates through the year ending December 31, 2033.2059. As of June 30, 2019,2020, the weighted-average remaining lease term on these leases was 11.0210.70 years. Various leases contain renewal or termination options controlled by the Company or options to purchase the leased property during or at the expiration of the lease period at specific prices. Some leases contain escalation clauses calling for rentals to be adjusted for increased real estate taxes and other operating expenses or proportionately adjusted for increases in consumer or other price indices. Variable payments for real estate taxes and other operating expenses are considered to be non-lease components and are excluded from the determination of the lease liability. In addition, the Company rentsleases or subleases certain real estate to third-parties. The following summary reflects the future minimum payments by year required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year and a reconciliation of those payments to the Company's lease liability as of June 30, 2019.2020.
Lease Liability
(Dollar amounts in thousands)
 As of  
 June 30, 2020
Year Ending December 31,
2020$9,466  
202118,785  
202218,711  
202318,811  
202418,530  
2025 and thereafter105,995  
Total minimum lease payments190,298  
Discount(1)
(28,752) 
Lease liability(2)
$161,546  
  As of  
 June 30, 2019
Year Ending December 31,  
2019 $8,124
2020 17,409
2021 17,277
2022 17,284
2023 17,419
2024 and thereafter 115,479
Total minimum lease payments 192,992
Discount(1)
 (32,973)
Lease liability(2)
 $160,019
(1)
Represents the net present value adjustment related to minimum lease payments.
(1)
(2)Included in accrued interest payable and other liabilities in the Consolidated Statements of Financial Condition.
Represents the net present value adjustment related to minimum lease payments.
(2)
Included in accrued interest payable and other liabilities in the Consolidated Statements of Financial Condition.
The discount rate for the Company's operating leases is the rate implicit in the lease and, if that rate cannot be readily determined, the Company's incremental borrowing rate. The weighted-average discount rate on the Company's operating leases was 3.34%2.96% as of June 30, 2019.2020.
As of June 30, 2019,2020, right-of-use assets of $139.9$141.2 million associated with lease liabilities were included in accrued interest receivable and other assets in the Consolidated Statements of Financial Condition.
The following table presents net operating lease expense for the quarters and six months ended June 30, 20192020 and 2018.2019.
Net Operating Lease Expense
(Dollar amounts in thousands)
 Quarters Ended 
 June 30,		Six Months Ended 
 June 30,
 2020201920202019
Lease expense charged to operations$4,839  $4,426  $9,514  $8,486  
Rental income from premises leased to others (1)
(183) (165) (398) (322) 
Net operating lease expense$4,656  $4,261  $9,116  $8,164  
  Quarters Ended 
 June 30,		 Six Months Ended 
 June 30,
  2019 2018 2019 2018
Lease expense charged to operations $4,426
 $4,946
 $8,486
 $9,943
Accretion of operating lease intangible (1)
 —
 (210) —
 (505)
Accretion of deferred gain on sale-leaseback transaction (1)
 —
 (1,463) —
 (2,926)
Rental income from premises leased to others (1)
 (165) (108) (322) (262)
Net operating lease expense $4,261
 $3,165
 $8,164
 $6,250
(1)
Included as reductions to net occupancy and equipment expense in the Condensed Consolidated Statements of Income.
(1)
Included as reductions to net occupancy and equipment expense in the Condensed Consolidated Statements of Income.
During 2016, the Bank completed a sale-leaseback transaction, whereby the Bank sold to a third-party 55 branches and concurrently entered into triple net lease agreements with certain affiliates of the third-party for each of the branches sold. The sale-leaseback transaction resulted in a pre-tax gain of $88.0 million, net of transaction related expenses, of which $5.5 million was immediately recognized in earnings. Remaining deferred pre-tax gains were $65.5 million as of December 31, 2018. Upon adoption of new

30



lease guidance on January 1, 2019, the remaining after taxafter-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
29


9.  BORROWED FUNDS
The following table summarizes the new lease guidance seeCompany's borrowed funds by funding source.
Summary of Borrowed Funds
(Dollar amounts in thousands)
 As of
 June 30,
2020		December 31,
2019
Securities sold under agreements to repurchase$130,667  $103,515  
Federal funds purchased200,000  160,000  
FHLB advances1,974,528  1,395,243  
Total borrowed funds$2,305,195  $1,658,758  
Securities sold under agreements to repurchase are treated as financings and the obligations to repurchase securities sold are included as a liability in the Consolidated Statements of Financial Condition. Repurchase agreements are secured by U.S. treasury and agency securities which are held in third-party pledge accounts if required. The securities underlying the agreements remain in the respective asset accounts. As of June 30, 2020, the Company did not have amounts at risk under repurchase agreements with any individual counterparty or group of counterparties that exceeded 10% of stockholders' equity.
The Bank is a member of the FHLB and has access to term financing from the FHLB. These advances are secured by designated assets that may include qualifying commercial real estate, residential and multi-family mortgages, home equity loans, and certain municipal and mortgage-backed securities. As of June 30, 2020, the Company held various short-term FHLB advances with fixed interest rates that range from 0.00% to 1.97% and maturity dates that range from July 1, 2020 to March 4, 2030.
The Company hedges interest rates on borrowed funds using interest rate swaps through which the Company receives variable amounts and pays fixed amounts. See Note 2, "Recent Accounting Pronouncements."12 "Derivative Instruments and Hedging Activities" for a detailed discussion of interest rate swaps.
The following table presents short-term credit lines available for use, for which the Company did not have an outstanding balance as of June 30, 2020 and December 31, 2019.
9.Short-Term Credit Lines Available for Use
(Dollar amounts in thousands)
 As of
 June 30,
2020		December 31,
2019
FRB's Discount Window Primary Credit Program$803,068  $874,256  
Available federal funds lines814,000  718,000  
Correspondent bank line of credit50,000  50,000  
On September 27, 2016, the Company entered into a loan agreement with U.S. Bank National Association providing for a $50.0 million short-term, unsecured revolving credit facility. On September 26, 2019, the Company entered into a third amendment to this credit facility, which extends the maturity to September 26, 2020. Advances will bear interest at a rate equal to one-month LIBOR plus 1.75%, adjusted on a monthly basis, and the Company must pay an unused facility fee equal to 0.35% per annum on a quarterly basis. Management expects to use this line of credit for general corporate purposes. As of June 30, 2020, 0 amount was outstanding under the facility.
A discussion of terms relevant to senior and subordinated debt is presented in Note 13, "Senior and Subordinated Debt" to the Consolidated Financial Statements in the Company's 2019 10-K.
10. MATERIAL TRANSACTIONS AFFECTING STOCKHOLDERS' EQUITY
Issuance of Common Stock
On March 9, 2020, the Company issued 4.9 million shares of its common stock with a market value of $14.58 per share at issuance as part of the consideration in the Park Bank acquisition. Additional information regarding the Park Bank acquisition is presented in Note 3, "Acquisitions".
30



Issuance of Preferred Stock
During the second quarter of 2020, the Company issued 4.3 million depositary shares, each representing a 1/40th interest in a share of the Company's 7.000% Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series A, and 4.9 million depositary shares, each representing a 1/40th interest in a share of the Company's Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series C, for an aggregate of $230.5 million. The Company received proceeds of $221.3 million, net of underwriting discounts and commissions and issuance costs and expects to use the proceeds for general corporate purposes.
Stock Repurchases
On March 19, 2019, the Company announced a new stock repurchase program that authorizesauthorized the Company to repurchase up to $180 million of its common stock. Stock repurchases under this program may be madestock from time to time on the open market or in privately negotiated transactions, at the discretion of the Company. The program will be in effect for
On February 26, 2020, the Company announced a one-year period, with repurchases made at prices to be determined by the Company. Thenew stock repurchase program does not obligateauthorizing the discretionary repurchase of up to $200 million of its outstanding common stock through December 31, 2021. This program replaced the Company's prior $180 million stock repurchase program, which was set to expire in March 2020. The Company suspended repurchases in March as it shifted its capital deployment strategy in response to the pandemic. Prior to the suspension, the Company to repurchase a specific dollar amount or number of shares, and the program may be extended, modified, or discontinued at any time.
The Companyhad repurchased 1,041,7001.2 million shares of its common stock at a total cost of $21.2$22.6 million during the quarter and six months ended June 30, 2019.2020.
10.11. EARNINGS PER COMMON SHARE
The table below displays the calculation of basic and diluted earnings per common share ("EPS").
Basic and Diluted EPS
(Amounts in thousands, except per share data)
  Quarters Ended 
 June 30,		 Six Months Ended 
 June 30,
  2019 2018 2019 2018
Net income $47,014
 $29,600
 $93,072
 $63,110
Net income applicable to non-vested restricted shares (389) (240) (792) (551)
Net income applicable to common shares $46,625
 $29,360
 $92,280
 $62,559
Weighted-average common shares outstanding:        
Weighted-average common shares outstanding (basic) 108,467
 102,159
 107,126
 102,041
Dilutive effect of common stock equivalents —
 —
 —
 8
Weighted-average diluted common shares outstanding 108,467
 102,159
 107,126
 102,049
Basic EPS $0.43
 $0.29
 $0.86
 $0.61
Diluted EPS $0.43
 $0.29
 $0.86
 $0.61
Anti-dilutive shares not included in the computation of diluted EPS(1)
 —
 —
 —
 54
(1)
This amount represents outstanding stock options for which the exercise price is greater than the average market price of the Company's common stock. The final outstanding stock options were exercised during the first quarter of 2018.
 Quarters Ended 
 June 30,		Six Months Ended 
 June 30,
 2020201920202019
Net income$19,064  $47,014  $38,670  $93,072  
Preferred dividends(1,037) —  (1,037) —  
Net income applicable to unvested restricted shares(187) (389) (379) (792) 
Net income applicable to common shares$17,840  $46,625  $37,254  $92,280  
Weighted-average common shares outstanding:    
Weighted-average common shares outstanding (basic)113,145  108,467  111,533  107,126  
Dilutive effect of common stock equivalents191  —  339  —  
Weighted-average diluted common shares outstanding113,336  108,467  111,872  107,126  
Basic EPS$0.16  $0.43  $0.33  $0.86  
Diluted EPS$0.16  $0.43  $0.33  $0.86  
11.
12. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In the ordinary course of business, the Company enters into derivative transactions as part of its overall interest rate risk management strategy. The significant accounting policies related to derivative instruments and hedging activities are presented in Note 1, "Summary of Significant Accounting Policies."
Cash Flow Hedges
As of June 30, 2019,2020, the Company hedged $1.0 billion$430.0 million of certain corporate variable rate loans using interest rate swaps through which the Company receives fixed amounts and pays variable amounts. The Company also hedged $1.0$1.6 billion of borrowed funds using forward starting interest rate swaps through which the Company receives variable amounts and pays fixed amounts. These transactions allow the Company to add stability to net interest income and manage its exposure to interest rate movements.
Forward starting interestInterest rate swaps totaling $685.0 million$1.1 billion began on various dates between AugustDecember of 20152018 and April of 20192020 and mature between AugustOctober of 20192021 and DecemberMarch of 2023.2025. The remaining forward starting interest rate swaps totaling $330.0$485.0 million begin at various dates between DecemberJuly of 20192020 and February of 2021 and mature between DecemberJuly of 20212022 and FebruaryAugust of 2023.2024. The weighted-average fixed interest rate to be paid on these interest rate swaps that have not yet begun was 2.56%1.86% as of June 30, 2019.2020. These derivative contracts are designated as cash flow hedges.

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Cash Flow Hedges
(Dollar amounts in thousands)
As of
 June 30, 2020December 31, 2019
Gross notional amount outstanding$2,035,000  $1,905,000  
Derivative asset fair value in other assets(1)
6,053  727  
Derivative liability fair value in other liabilities(1)
198  (119) 
Weighted-average interest rate received0.96 %1.88 %
Weighted-average interest rate paid0.77 %1.74 %
Weighted-average maturity (in years)2.301.18
  As of
  June 30, 2019 December 31, 2018
Gross notional amount outstanding $2,030,000
 $2,280,000
Derivative asset fair value in other assets(1)
 2,008
 6,889
Derivative liability fair value in other liabilities(1)
 (1,819) (11,328)
Weighted-average interest rate received 2.13% 2.12%
Weighted-average interest rate paid 2.22% 2.20%
Weighted-average maturity (in years) 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.
(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 lossincome (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 June 30, 2019,2020, the Company estimates that $698,000$4.3 million will be reclassified from accumulated other comprehensive lossincome (loss) as an increasea decrease to interest income over the next twelve months.
Other Derivative Instruments
The Company also enters into derivative transactions through capital market products with its commercial customers and simultaneously enters into an offsetting interest rate derivative transaction with third-parties. This transaction allows the Company's customers to effectively convert a variable rate loan into a fixed rate loan. Due to the offsetting nature of these transactions, the Company does not apply hedge accounting treatment. The Company's credit exposure on these derivative transactions results primarily from counterparty credit risk. The credit valuation adjustment ("CVA") is a fair value adjustment to the derivative to account for this risk. As of June 30, 20192020 and December 31, 2018,2019, the Company's credit exposure was fully secured by the underlying collateral on customer loans and mitigated through netting arrangements with third-parties; therefore, no CVA was recorded. Capital market products income related to commercial customer derivative instruments totaled $694,000 and $5.4 million for the quarter and six months ended June 30, 2020, respectively, and were $2.2 million and $3.4 million for the quarter and six months ended June 30, 2019, respectively. There were $2.8 million and $4.4 million of capital market products income for the quarter and six months ended June 30, 2018, respectively.
Other Derivative Instruments
(Dollar amounts in thousands)
As of
 June 30, 2020December 31, 2019
Gross notional amount outstanding$4,589,018  $4,340,384  
Derivative asset fair value in other assets(1)
183,938  61,709  
Derivative liability fair value in other liabilities(1)
(55,026) (18,416) 
Fair value of derivative(2)
56,025  18,856  
  As of
  June 30, 2019 December 31, 2018
Gross notional amount outstanding $3,289,412
 $3,085,226
Derivative asset fair value in other assets(1)
 57,897
 25,168
Derivative liability fair value in other liabilities(1)
 (21,372) (17,533)
Fair value of derivative(2)
 21,494
 18,013
(1)Certain other derivative instruments are centrally cleared and their change in fair value is settled by the counterparties to the transaction, which results in no fair value.
(1)
(2)This amount represents the fair value if credit risk related contingent features were triggered.
Certain other derivative instruments are centrally cleared and their change in fair value is settled by the counterparties to the transaction, which results in no fair value.
(2)
This amount represents the fair value if credit risk related contingent features were triggered.
The Company occasionally enters into risk participation agreements with counterparty banks to transfer or assume a portion of the credit risk related to customer transactions. The amounts of these instruments were not material for any periods presented. The Company had no other derivative instruments as of June 30, 20192020 and December 31, 2018.2019. The Company does not enter into derivative transactions for purely speculative purposes.

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The following table presents the impact of derivative instruments on comprehensive income (loss) and the reclassification of gains (losses) from accumulated other comprehensive lossincome (loss) to net interest income for the quarters and six months ended June 30, 20192020 and 2018.2019.
Cash Flow Hedge Accounting on AOCI
(Dollar amounts in thousands)
  Quarters Ended 
 June 30,		 Six Months Ended 
 June 30,
  2019 2018 2019 2018
Gains (losses) recognized in other comprehensive income        
Interest rate swaps in interest income $5,944
 $3,577
 $9,297
 $10,573
Interest rate swaps in interest expense (7,816) (2,860) (11,996) (10,043)
Reclassification of gains (losses) included in net income        
Interest rate swaps in interest income $1,355
 $376
 $2,748
 $647
Interest rate swaps in interest expense (1,924) (503) (3,948) (1,109)

Quarters Ended 
 June 30,		Six Months Ended 
 June 30,
2020201920202019
Gains (losses) recognized in other comprehensive income
Interest rate swaps in interest income$5,951  $5,944  $27,955  $9,297  
Interest rate swaps in interest expense(1,276) (7,816) (13,685) (11,996) 
Reclassification of gains (losses) included in net income
Interest rate swaps in interest income$2,624  $1,355  $3,069  $2,748  
Interest rate swaps in interest expense—  (1,924) —  (3,948) 
The following table presents the impact of derivative instruments on net interest income for the quarters and six months ended June 30, 20192020 and 2018.2019.
Hedge Income
(Dollar amounts in thousands)
  Quarters Ended 
 June 30,		 Six Months Ended 
 June 30,
  2019 2018 2019 2018
Cash Flow Hedges        
Interest rate swaps in interest income 1,355
 376
 2,748
 647
Interest rate swaps in interest expense (1,924) (503) (3,948) (1,109)
Total cash flow hedges (569) (127) (1,200) (462)

 Quarters Ended 
 June 30,		Six Months Ended 
 June 30,
 2020201920202019
Cash Flow Hedges
Interest rate swaps in interest income$2,624  $1,355  $3,069  $2,748  
Interest rate swaps in interest expense—  (1,924) —  (3,948) 
Total cash flow hedges$2,624  $(569) $3,069  $(1,200) 
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 June 30, 20192020 and December 31, 2018,2019, these collateral agreements covered 100% of the fair value of the Company's outstanding fair value hedges.derivatives. Derivative assets and liabilities are presented gross, rather than net, of pledged collateral amounts.

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Certain derivative instruments are subject to master netting agreements with counterparties. The Company records these transactions at their gross fair values and does not offset derivative assets and liabilities in the Consolidated Statements of Financial Condition. The following table presents the fair value of the Company's derivatives and offsetting positions as of June 30, 20192020 and December 31, 2018.2019.
Fair Value of Offsetting Derivatives
(Dollar amounts in thousands)
As of June 30, 2020As of December 31, 2019
 AssetsLiabilitiesAssetsLiabilities
Gross amounts recognized$189,991  $54,828  $62,436  $18,535  
Less: amounts offset in the Consolidated Statements of
Financial Condition		—  —  —  —  
Net amount presented in the Consolidated Statements of
  Financial Condition(1)
189,991  54,828  62,436  18,535  
Gross amounts not offset in the Consolidated Statements of
Financial Condition:
Offsetting derivative positions(7,495) (7,495) (2,674) (2,674) 
Cash collateral pledged—  (48,430) —  (15,861) 
Net credit exposure$182,496  $(1,097) $59,762  $—  
  As of June 30, 2019 As of December 31, 2018
  Assets Liabilities Assets Liabilities
Gross amounts recognized $59,905
 $23,191
 $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)
 59,905
 23,191
 32,057

28,861
Gross amounts not offset in the Consolidated Statements of
  Financial Condition:
        
Offsetting derivative positions (4,088) (4,088) (11,678) (11,678)
Cash collateral pledged —
 (12,618) (9,060) (3,506)
Net credit exposure $55,817
 $6,485
 $11,319
 $13,677
(1)(1)Included in other assets or other liabilities in the Consolidated Statements of Financial Condition.
Included in other assets or other liabilities in the Consolidated Statements of Financial Condition.
As of June 30, 20192020 and December 31, 2018,2019, the Company's derivative instruments generally contained provisions that require the Company's debt to remain above a certain credit rating by each of the major credit rating agencies or that the Company maintain certain capital levels. If the Company's debt were to fall below that credit rating or the Company's capital were to fall below the required levels, it would be in violation of those provisions, and the counterparties to the derivative instruments could terminate the swap transaction and demand cash settlement of the derivative instrument in an amount equal to the derivative liability fair value. As of June 30, 20192020 and December 31, 20182019 the Company was in compliance with these provisions.

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12.13. COMMITMENTS, GUARANTEES, AND CONTINGENT LIABILITIES
Credit Commitments and Guarantees
In the normal course of business, the Company enters into a variety of financial instruments with off-balance sheet risk to meet the financing needs of its customers and to conduct lending activities, including commitments to extend credit andas well as standby and commercial letters of credit. These instruments involve elements of credit and interest rate risk in excess of the amount recognized in the Consolidated Statements of Financial Condition.
Contractual or Notional Amounts of Financial Instruments
(Dollar amounts in thousands)
As of
 June 30, 2020December 31, 2019
Commitments to extend credit:  
Commercial, industrial, and agricultural$2,276,196  $1,852,040  
Commercial real estate324,659  296,053  
Home equity578,920  576,956  
Other commitments(1)
251,716  251,093  
Total commitments to extend credit$3,431,491  $2,976,142  
  
Letters of credit$100,827  $103,684  
  As of
  June 30, 2019 December 31, 2018
Commitments to extend credit:    
Commercial, industrial, and agricultural $1,699,246
 $1,729,286
Commercial real estate 283,183
 296,882
Home equity 583,198
 570,553
Other commitments(1)
 256,356
 244,917
Total commitments to extend credit $2,821,983
 $2,841,638
     
Letters of credit $114,304
 $112,728
(1)(1)Other commitments includes installment and overdraft protection program commitments.
Other commitments includes installment and overdraft protection program commitments.
Commitments to extend credit are agreements to lend funds to a customer, subject to contractual terms and covenants. Commitments generally have fixed expiration dates or other termination clauses, variable interest rates, and fee requirements, when applicable. Since many of the commitments are expected to expire without being drawn, the total commitment amounts do not necessarily represent future cash flow requirements.
In the event of a customer's non-performance, the Company's credit loss exposure is equal to the contractual amount of the commitments. The credit risk is essentially the same as extending loans to customers for the full contractual amount. The Company uses the same credit policies for credit commitments as its loans and minimizes exposure to credit loss through various collateral requirements.
Letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third-party. Letters of credit generally are contingent on the failure of the customer to perform according to the terms of the contract with the third-party and are often issued in favor of a municipality where construction is taking place to ensure the borrower adequately completes the construction. Commercial letters of credit are issued to facilitate transactions between a customer and a third-party based on agreed upon terms.
The maximum potential future payments guaranteed by the Company under letters of credit arrangements are equal to the contractual amount of the commitment. If a commitment is funded, the Company may seek recourse through the liquidation of the underlying collateral, including real estate, production plants and property, marketable securities, or receipt of cash.
As a result of the sale of certain 1-4 family mortgage loans, the Company is contractually obligated to repurchase early payment default loans or loans that do not meet underwriting requirements at recorded value. In accordance with the sales agreements, there is no limitation to the maximum potential future payments or expiration of the Company's recourse obligation. There were no material loan repurchases during the quarters and six months ended June 30, 20192020 and 2018.2019.
Legal Proceedings
In the ordinary course of business, there were certain legal proceedings pending against the Company and its subsidiaries at June 30, 2019.2020. While the outcome of any legal proceeding is inherently uncertain, based on information currently available, the Company's management does not expect that any liabilities arising from pending legal matters will have a material adverse effect on the Company's business, financial position, or results of operations, or cash flows.operations.

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

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Assets and Liabilities Required to be Measured at Fair Value on a Recurring Basis
The following table provides the fair value for assets and liabilities required to be measured at fair value on a recurring basis in the Consolidated Statements of Financial Condition by level in the fair value hierarchy.
Recurring Fair Value Measurements
(Dollar amounts in thousands)
 As of June 30, 2020As of December 31, 2019
 Level 1Level 2Level 3Level 1Level 2Level 3
Assets      
Equity securities$24,075  $14,879  $—  $23,703  $13,400  $—  
Securities available-for-sale      
U.S. treasury securities21,199  —  —  34,075  —  —  
U.S. agency securities—  643,047  —  —  248,424  —  
CMOs—  1,672,129  —  —  1,557,671  —  
MBSs—  715,140  —  —  684,684  —  
Municipal securities—  239,803  —  —  234,431  —  
Corporate debt securities—  144,544  —  —  114,101  —  
Total securities available-for-sale21,199  3,414,663  —  34,075  2,839,311  —  
Mortgage servicing rights ("MSRs")(1)
—  —  4,464  —  —  5,858  
Derivative assets(1)
—  189,991  —  —  62,436  —  
Liabilities      
Derivative liabilities(2)
$—  $54,828  $—  $—  $18,535  $—  
  As of June 30, 2019 As of December 31, 2018
  Level 1 Level 2 Level 3 Level 1 Level 2 Level 3
Assets            
Equity securities $22,613
 $13,040
 $—
 $19,658
 $11,148
 $—
Securities available-for-sale            
U.S. treasury securities 43,087
 —
 —
 37,767
 —
 —
U.S. agency securities —
 187,238
 —
 —
 142,563
 —
CMOs —
 1,549,728
 —
 —
 1,315,209
 —
MBSs —
 670,407
 —
 —
 466,934
 —
Municipal securities —
 238,342
 —
 —
 227,187
 —
Corporate debt securities —
 104,514
 —
 —
 82,349
 —
Total securities available-for-sale 43,087
 2,750,229
 —
 37,767
 2,234,242
 —
Mortgage servicing rights ("MSRs")(1)
 —
 —
 5,831
 —
 —
 6,730
Derivative assets(1)
 —
 59,905
 —
 —
 32,057
 —
Liabilities            
Derivative liabilities(2)
 $—
 $23,191
 $—
 $—
 $28,861
 $—
(1)
Included in other assets in the Consolidated Statements of Financial Condition.
(1)
(2)Included in other liabilities in the Consolidated Statements of Financial Condition.
Included in other assets in the Consolidated Statements of Financial Condition.
(2)
Included in other liabilities in the Consolidated Statements of Financial Condition.
The following sections describe the specific valuation techniques and inputs used to measure financial assets and liabilities at fair value.
Equity Securities
The Company's equity securities consist primarily of community development investments and certain diversified investment securities held in a grantor trust for participants in the Company's nonqualified deferred compensation plan that are invested in money market and mutual funds. The fair value of certain community development investments is based on quoted prices in active markets or market prices for similar securities obtained from external pricing services or dealer market participants and is classified in level 2 of the fair value hierarchy. As of June 30, 2019,2020, the fair value of certain community development investments totaling $5.0 million was based on the net asset value per share ("NAV") practical expedient and can be redeemed at any month end with 30 days notice. Since these investments are measured at fair value using the NAV practical expedient, they are not classified in the fair value hierarchy. The fair value of the money market and mutual funds is based on quoted market prices in active exchange markets and is classified in level 1 of the fair value hierarchy.
Securities Available-for-Sale
The Company's securities available-for-sale are primarily fixed income instruments that are not quoted on an exchange but may be traded in active markets. The fair values for these securities are based on quoted prices in active markets or market prices for similar securities obtained from external pricing services or dealer market participants and are classified in level 2 of the fair value hierarchy. The fair value of U.S. treasury securities is based on quoted market prices in active exchange markets and is classified in level 1 of the fair value hierarchy. Quarterly, the Company evaluates the methodologies used by its external pricing services to estimate the fair value of these securities in order to determine whether the valuations represent an exit price in the Company's principal markets.

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MSRs
The Company services loans for others totaling $641.6$675.6 million and $627.3$653.7 million as of June 30, 20192020 and December 31, 2018,2019, respectively. These loans are owned by third-parties and are not included in the Consolidated Statements of Financial Condition. The Company determines the fair value of MSRs by estimating the present value of expected future cash flows associated with the mortgage loans being serviced and classifies them in level 3 of the fair value hierarchy. The following table presents the ranges of significant, unobservable inputs used by the Company to determine the fair value of MSRs as of June 30, 20192020 and December 31, 2018.2019.
Significant Unobservable Inputs Used in the Valuation of MSRs
  As of
  June 30, 2019 December 31, 2018
Prepayment speed 6.8% -10.5% 6.5% -13.5%
Maturity (months) 18
 -89 20
 -104
Discount rate 9.5% -12.0% 9.5% -12.0%

As of
June 30, 2020December 31, 2019
Prepayment speed7.6 % -14.9%6.7 % -12.0%
Maturity (months)16 -8818 -94
Discount rate9.4 % -12.0%9.3 % -12.0%
The impact of changes in these key inputs could result in a significantly higher or lower fair value measurement for MSRs. Significant increases in expected prepayment speeds and discount rates have negative impacts on the valuation. Higher maturity assumptions have a favorable effect on the estimated fair value.
A rollforward of the carrying value of MSRs for the quarters and six months ended June 30, 20192020 and 20182019 is presented in the following table.
Carrying Value of MSRs
(Dollar amounts in thousands)
 Quarters Ended 
 June 30,		Six Months Ended 
 June 30,
 2020201920202019
Beginning balance$4,874  $6,228  $5,858  $6,730  
New MSRs745  204  901  457  
Total gains (losses) included in earnings(1):
  
Changes in valuation inputs and assumptions(750) (389) (1,658) (989) 
Other changes in fair value(2)
(405) (212) (637) (367) 
Ending balance(3)
$4,464  $5,831  $4,464  $5,831  
Contractual servicing fees earned(1)
$394  $390  $797  $771  
  Quarters Ended 
 June 30,		 Six Months Ended 
 June 30,
  2019 2018 2019 2018
Beginning balance $6,228
 $6,468
 $6,730
 $5,894
New MSRs 204
 393
 457
 569
Total gains (losses) included in earnings(1):
        
Changes in valuation inputs and assumptions (389) 2
 (989) 562
Other changes in fair value(2)
 (212) (192) (367) (354)
Ending balance(3)
 $5,831
 $6,671
 $5,831
 $6,671
Contractual servicing fees earned(1)
 $390
 $369
 $771
 $747
(1)
Included in mortgage banking income in the Condensed Consolidated Statements of Income and related to assets held as of June 30, 2020 and 2019.
(1)
(2)Primarily represents changes in expected future cash flows due to payoffs and paydowns.
(3)Included in other assets in the Consolidated Statements of Financial Condition.
Included in mortgage banking income in the Condensed Consolidated Statements of Income and related to assets held as of June 30, 2019 and 2018.
(2)
Primarily represents changes in expected future cash flows due to payoffs and paydowns.
(3)
Included in other assets in the Consolidated Statements of Financial Condition.
Derivative Assets and Derivative Liabilities
The Company enters into interest rate swaps and derivative transactions with commercial customers. These derivative transactions are executed in the dealer market, and pricing is based on market quotes obtained from the counterparties. The market quotes were developed using market observable inputs, which primarily include LIBOR. Therefore, derivatives are classified in level 2 of the fair value hierarchy. For its derivative assets and liabilities, the Company also considers non-performance risk, including the likelihood of default by itself and its counterparties, when evaluating whether the market quotes from the counterparty are representative of an exit price.

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Assets and Liabilities Required to be Measured at Fair Value on a Non-Recurring Basis
The following table provides the fair value for each class of assets and liabilities required to be measured at fair value on a non-recurring basis in the Consolidated Statements of Financial Condition by level in the fair value hierarchy.
Non-Recurring Fair Value Measurements
(Dollar amounts in thousands)
 As of June 30, 2020As of December 31, 2019
 Level 1Level 2Level 3Level 1Level 2Level 3
Collateral-dependent non-accrual loans(1)
$—  $—  $53,608  $—  $—  $41,326  
OREO(2)
—  —  530  —  —  3,325  
Loans held-for-sale(3)
—  —  45,466  —  —  36,032  
Assets held-for-sale(4)
—  —  5,180  —  —  6,824  
  As of June 30, 2019 As of December 31, 2018
  Level 1 Level 2 Level 3 Level 1 Level 2 Level 3
Collateral-dependent impaired loans(1)
 $—
 $—
 $21,089
 $—
 $—
 $24,565
OREO(2)
 —
 —
 1,820
 —
 —
 6,012
Loans held-for-sale(3)
 —
 —
 16,948
 —
 —
 3,478
Assets held-for-sale(4)
 —
 —
 3,655
 —
 —
 3,722
(1)Includes non-accrual loans with charge-offs and non-accrual loans with a specific allowance during the periods presented.
(1)
(2)Includes OREO with fair value adjustments subsequent to initial transfer that occurred during the periods presented.
(3)Included in other assets in the Consolidated Statements of Financial Condition.
(4)Included in premises, furniture, and equipment in the Consolidated Statements of Financial Condition.
Includes impaired loans with charge-offs and impaired loans with a specific reserve during the periods presented.
(2)
Includes OREO with fair value adjustments subsequent to initial transfer that occurred during the periods presented.
(3)
Included in other assets in the Consolidated Statements of Financial Condition.
(4)
Included in premises, furniture, and equipment in the Consolidated Statements of Financial Condition.
Collateral-Dependent ImpairedNon-accrual Loans
Certain collateral-dependent impairednon-accrual loans are subject to fair value adjustments to reflect the difference between the carrying value of the loan and the fair value of the underlying collateral. The fair values of collateral-dependent impairednon-accrual loans are primarily determined by current appraised values of the underlying collateral. Based on the age and/or type, appraisals may be adjusted in the range of 0% to 15%. In certain cases, an internal valuation may be used when the underlying collateral is located in areas where comparable sales data is limited or unavailable. Accordingly, collateral-dependent impairednon-accrual loans are classified in level 3 of the fair value hierarchy.
Collateral-dependent impairednon-accrual loans for which the fair value is greater than the recorded investment are not measured at fair value in the Consolidated Statements of Financial Condition and are not included in this disclosure.
OREO
The fair value of OREO is measured using the current appraised value of the properties. In certain circumstances, a current appraisal may not be available or may not represent an accurate measurement of the property's fair value due to outdated market information or other factors. In these cases, the fair value is determined based on the lower of the (i) most recent appraised value, (ii) broker price opinion, (iii) current listing price, or (iv) signed sales contract.contract, all less estimated costs to sell. Given these valuation methods, OREO is classified in level 3 of the fair value hierarchy.
Loans Held-for-Sale
As of June 30, 20192020 and December 31, 2018,2019, loans held-for-sale consists of 1-4 family mortgage loans, which were originated with the intent to sell. These loans were recorded in the held-for-sale category at the contract price and, accordingly, are classified in level 3 of the fair value hierarchy.
Assets Held-for-Sale
Assets held-for-sale as of June 30, 20192020 and December 31, 20182019 consists of former branches that are no longer in operation and parcels of land previously purchased for expansion. These properties are being actively marketed and were transferred into the held-for-sale category at their fair value as determined by current appraisals. Based on these valuation methods, they are classified in level 3 of the fair value hierarchy.

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Financial Instruments Not Required to be Measured at Fair Value
For certain financial instruments that are not required to be measured at fair value in the Consolidated Statements of Financial Condition, the Company must disclose the estimated fair values and the level within the fair value hierarchy as shown in the following table.
Fair Value Measurements of Other Financial Instruments
(Dollar amounts in thousands)
    As of
    June 30, 2019 December 31, 2018
  
Fair Value Hierarchy
Level
 
Carrying
Amount
 Fair Value 
Carrying
Amount
 Fair Value
Assets          
Cash and due from banks 1 $199,684
 $199,684
 $211,189
 $211,189
Interest-bearing deposits in other banks 2 126,966
 126,966
 78,069
 78,069
Securities held-to-maturity 2 23,277
 22,405
 10,176
 9,871
FHLB and FRB stock 2 109,466
 109,466
 80,302
 80,302
Loans 3 12,415,371
 12,273,439
 11,346,668
 11,052,040
Investment in BOLI 3 297,118
 297,118
 296,733
 296,733
Accrued interest receivable 3 59,765
 59,765
 54,847
 54,847
Liabilities          
Deposits 2 $13,188,588
 $13,185,124
 $12,084,112
 $12,064,604
Borrowed funds 2 1,407,378
 1,407,378
 906,079
 906,079
Senior and subordinated debt 2 233,538
 272,085
 203,808
 211,207
Accrued interest payable 2 13,091
 13,091
 10,005
 10,005

As of
 June 30, 2020December 31, 2019
 Fair Value Hierarchy
Level		Carrying
Amount		Fair ValueCarrying
Amount		Fair Value
Assets    
Cash and due from banks1$304,445  $304,445  $214,894  $214,894  
Interest-bearing deposits in other banks2637,856  637,856  84,327  84,327  
Securities held-to-maturity219,628  19,676  21,997  21,234  
FHLB and FRB stock2148,512  148,512  115,409  115,409  
Loans314,693,606  14,739,129  12,733,200  12,535,848  
Investment in BOLI3299,649  299,649  296,351  296,351  
Accrued interest receivable363,162  63,162  59,716  59,716  
Liabilities     
Deposits2$15,657,656  $15,667,051  $13,251,278  $13,247,871  
Borrowed funds22,305,195  2,305,195  1,658,758  1,658,758  
Senior and subordinated debt2234,358  266,003  233,948  277,203  
Accrued interest payable27,633  7,633  10,502  10,502  
Management uses various methodologies and assumptions to determine the estimated fair values of the financial instruments in the table above. The fair value estimates are made at a discrete point in time based on relevant market information and consider management's judgments regarding future expected economic conditions, loss experience, and specific risk characteristics of the financial instruments. Loans include the FDIC indemnification asset and net loans, which consists of loans held-for-investment, acquired loans, and the allowance for loan losses. As of both June 30, 20192020 and December 31, 2018,2019, the Company estimated the fair value of lending commitments outstanding to be immaterial.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
First Midwest Bancorp, Inc. is a bank holding company headquartered in Chicago, Illinois, with operations throughoutin metropolitan Chicago, southeast Wisconsin, northwest Indiana, southeast Wisconsin, central and western Illinois, eastern Iowa, and eastern Iowa.other markets in the Midwest. Our principal subsidiary, First Midwest Bank, and other affiliates provide a full range of commercial, treasury management, equipment leasing, consumer, wealth management, trust, and private banking products and services to commercial and industrial, commercial real estate, municipal, and consumer customers.through 132 banking locations. We are committed to meeting the financial needs of the people and businesses in the communities where we live and work by providing customized banking and wealth management solutions, quality products, and innovative services that fulfill those financial needs.
The following discussion and analysis is intended to address the significant factors affecting our Condensed Consolidated Statements of Income for the quarters and six months ended June 30, 20192020 and 20182019 and Consolidated Statements of Financial Condition as of June 30, 20192020 and December 31, 2018.2019. When we use the terms "First Midwest," the "Company," "we," "us," and "our," we mean First Midwest Bancorp, Inc. and its consolidated subsidiaries. When we use the term "Bank," we are referring to our wholly-owned banking subsidiary, First Midwest Bank. Management's discussion and analysis should be read in conjunction with the consolidated financial statements, accompanying notes thereto, and other information presented in Item 1 of this Quarterly Report on Form 10-Q ("Form 10-Q"), as well as in our 20182019 Annual Report on Form 10-K ("20182019 10-K"). The results of operations for the quarter and six months ended June 30, 20192020 are not necessarily indicative of future results.
Our results of operations are affected by various factors, many of which are beyond our control, including interest rates, local, regional, and national economic conditions, business spending, consumer confidence, legislative and regulatory changes, certain seasonal factors, and changes in real estate and securities markets. Our management evaluates performance using a variety of qualitative and quantitative metrics. The primary quantitative metrics used by management include:
•
•Net Interest Income – Net interest income, our primary source of revenue, equals the difference between interest income and fees earned on interest-earning assets and interest expense incurred on interest-bearing liabilities.
•Net Interest Margin – Net interest margin equals tax-equivalent net interest income divided by total average interest-earning assets.
•Noninterest Income – Noninterest income is the income we earn from fee-based revenues, investment in bank-owned life insurance ("BOLI"), other income, and non-operating revenues.
•Noninterest Expense – Noninterest expense is the expense we incur to operate the Company, which includes salaries and employee benefits, net occupancy and equipment, professional services, and other costs.
•Asset Quality – Asset quality represents an estimation of the quality of our loan portfolio, including an assessment of the credit risk related to existing and potential loss exposure, and can be evaluated using a number of quantitative measures, such as non-performing loans to total loans.
• – Net interest income, our primary source of revenue, equals the difference between interest income and fees earned on interest-earning assets and interest expense incurred on interest-bearing liabilities.
•
Net Interest Margin – Net interest margin equals tax-equivalent net interest income divided by total average interest-earning assets.
•
Noninterest Income – Noninterest income is the income we earn from fee-based revenues, investment in bank-owned life insurance ("BOLI"), other income, and non-operating revenues.
•
Noninterest Expense – Noninterest expense is the expense we incur to operate the Company, which includes salaries and employee benefits, net occupancy and equipment, professional services, and other costs.
•
Asset Quality – Asset quality represents an estimation of the quality of our loan portfolio, including an assessment of the credit risk related to existing and potential loss exposure, and can be evaluated using a number of quantitative measures, such as non-performing loans to total loans.
•
Regulatory Capital – Our regulatory capital is classified in one of the following tiers: (i) Common Equity Tier 1 capital ("CET1"), which consists of common equity and retained earnings, less goodwill and other intangible assets and a portion of disallowed deferred tax assets ("DTAs"), (ii) Tier 1 capital, which consists of CET1 and the remaining portion of disallowed deferred tax assets ("DTAs"), (ii) Tier 1 capital, which consists of CET1 and the remaining portion of disallowed DTAs, and (iii) Tier 2 capital, which includes qualifying subordinated debt, qualifying trust-preferred securities, and the allowance for credit losses, subject to limitations.
Some of these metrics may be presented on a basis not in accordance with U.S. generally accepted accounting principles ("non-GAAP"). For detail on our non-GAAP metrics, see the discussion in the section of this Item 2 titled "Non-GAAP Financial Information and Reconciliations." Unless otherwise stated, all earnings per common share data included in this section and throughout the remainder of this discussion are presented on a fully diluted basis.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-Q, as well as any oral statements made by or on behalf of First Midwest, may contain certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. In some cases, forward-looking statements can be identified by the use of words such as "may," "might," "will," "would," "should," "could," "expect," "plan," "intend," "anticipate," "believe," "estimate," "outlook," "predict," "project," "probable," "potential," "possible," "target," "continue," "look forward," or "assume" and words of similar import. Forward-looking statements are not historical facts or guarantees of future performance but instead express only management's beliefs regarding future results or events, many of which, by their nature, are inherently uncertain and outside of management's control. It is possible that actual results and events may differ, possibly materially, from the anticipated results or events indicated in these forward-looking statements. We cautionFirst
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Midwest cautions you not to place undue reliance

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on these statements. Forward-looking statements speak only as of the date made, and we undertakeFirst Midwest undertakes no obligation to update any forward-looking statements.
Forward-looking statements may be deemed to include, among other things, statements relating to ourFirst Midwest's future financial performance, including the related outlook for 2019,2020, the performance of ourFirst Midwest's loan or securities portfolio, the expected amount of future credit reservesallowances or charge-offs, corporate strategies or objectives, including the impact of certain actions and initiatives, our Delivering Excellence initiative, including costs and benefits associated therewith and the timing thereof, anticipated trends in ourFirst Midwest's business, regulatory developments, the impact of federal income tax reform legislation, acquisition transactions, including estimated synergies, cost savings and financial benefits of announced and completed transactions, and growth strategies, including possible future acquisitions.acquisitions, and the continued effects of the COVID-19 pandemic (the "pandemic") on our business, financial condition, liquidity, loans, asset quality and results of operations. These statements are subject to certain risks, uncertainties and assumptions, including thosethe duration, extent and severity of the pandemic, including the continued effects on our business, operations and employees, as well as on our customers and service providers, and on economies and markets more generally and other risks, uncertainties and assumptions that are discussed under the sections entitled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this report and in our 2018First Midwest's 2019 10-K, as well as ourand in First Midwest's subsequent filings made with the Securities and Exchange Commission ("SEC"). These risks and uncertainties are not exhaustive, and other sections of these reports describe additional factors that could adversely impact ourFirst Midwest's business and financial performance.
CRITICAL ACCOUNTING ESTIMATES
Our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles ("GAAP") and are consistent with general practices within the banking industry. Application of GAAP requires management to make estimates, assumptions, and judgments based on the best available information as of the date of the financial statements that affect the amounts reported in the consolidated financial statements and accompanying notes. Critical accounting estimates are those estimates that management believes are the most important to our financial position and results of operations. Future changes in information may impact these estimates, assumptions, and judgments, which may have a material effect on the amounts reported in the financial statements.
For additional information regarding critical accounting estimates, see the "Summary of Significant Accounting Policies," presented in Note 1 to the Consolidated Financial Statements and the section titled "Critical Accounting Estimates" in "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our 20182019 10-K.
Upon adoption of Accounting Standards Updated ("ASU") 2016-13 on January 1, 2020, there were material changes to the Company's application of critical accounting estimates related to the allowance for credit losses and valuation of securities since December 31, 2019.
Allowance for Credit Losses
The determination of the allowance for credit losses is inherently subjective since it requires significant estimates and management judgment, including the amounts and timing of expected future cash flows, actual loss experience, consideration of current national, regional, and local economic trends and conditions, reasonable and supportable forecasts about the future, changes in interest rates and property values, various internal and external qualitative factors, and other factors, all of which are susceptible to significant change. Credit exposures deemed to be uncollectible are charged-off against the allowance for loan losses, while recoveries of amounts previously charged-off are credited to the allowance for credit losses. Additions to the allowance for credit losses are established through the provision for credit losses charged to expense. The amount charged to operating expense depends on a number of factors, including historic loan growth, changes in the composition of the loan portfolio, net charge-off levels, and our assessment of the allowance for credit losses, including our estimate of the impact of the pandemic. For additional discussion of the allowance for credit losses, see Notes 1 and 7 of "Notes to the Condensed Consolidated Financial Statements" in Part 1, Item 1 of this Form 10-Q.
Valuation of Securities
The fair values of securities are based on quoted prices obtained from third-party pricing services or dealer market participants where a ready market for such securities exists. In the absence of quoted prices or where a market for the security does not exist, management judgment and estimation is used, which may include modeling-based techniques. The use of different judgments and estimates to determine the fair value of securities could result in a different fair value estimate.
On a quarterly basis, the Company assesses securities with unrealized losses to determine whether impairment has occurred. In evaluating impairment, management considers many factors, including the severity of the impairment, the financial condition and near-term prospects of the issuer, including external credit ratings and recent downgrades for debt securities, intent to hold the security until its value recovers, and the likelihood that the Company would be required to sell the securities before a recovery in value, which may be at maturity. Securities for which there is an unrealized loss that is deemed to be a credit-related impairment are recorded as an allowance through a charge to expense through noninterest expense, limited to the difference
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between amortized cost and fair value. Securities for which there is an unrealized loss that is not deemed to be a credit-related impairment are recorded through other comprehensive income (loss). The determination of impairment is subjective and different judgments and assumptions could affect the timing and amount of loss realization. For additional discussion of securities, see Notes 1 and 4 of "Notes to the Condensed Consolidated Financial Statements" in Part 1, Item 1 of this Form 10-Q.
There have been no material changes in the Company's application of critical accounting estimates related to the allowance for credit losses, valuation of securities, income taxes and goodwill and other intangible assets since December 31, 2018.2019.
ACQUISITIONS
Completed
Bridgeview Bancorp, Inc.ADOPTION OF THE CURRENT EXPECTED CREDIT LOSSES STANDARD
On MayJanuary 1, 2020, the Company adopted the current expected credit losses accounting standard ("CECL"), which requires the Company to present financial assets measured at amortized cost at the net amount expected to be collected considering our current estimate of all expected credit losses. Adoption of this standard on January 1, 2020 increased the allowance for credit losses by $76 million, which includes $32 million attributable to loans and unfunded commitments and $44 million attributable to purchased credit deteriorated ("PCD") and non-PCD acquired loans. For additional discussion of adopted accounting pronouncements, see Note 2 of "Notes to the Condensed Consolidated Financial Statements" in Part 1, Item 1 of this Form 10-Q.
COVID-19 PANDEMIC
The pandemic and the resulting governmental responses continue to impact our business and operations, as well as the business and operations of our clients. A variety of restrictions have been placed on companies and individuals throughout our primary operating footprint of Illinois, Wisconsin, Indiana and Iowa. In Illinois, where we are headquartered and conduct the substantial majority of our operations, the shelter-in-place order that was previously in place since March 2020, was lifted during the second quarter of 2020, although ongoing business restrictions are still in place as Illinois, Chicago, and other regions proceed through a phased reopening. The pandemic and these governmental measures have created and are expected to continue to create significant economic disruption and decreased economic activity.
We have experienced, and are likely to continue to experience in the future, a number of financial impacts as a result of the pandemic and governmental responses to it, including a higher provision for loan losses and lower net interest and noninterest income. Additionally, we are actively participating in the U.S. Small Business Association's Paycheck Protection Program ("PPP"), and have funded approximately $1.2 billion of these loans. PPP loans are being funded by a combination of deposits and borrowings, with the related processing fees earned being recognized as a yield adjustment over the terms of these loans. We are also committed to using our strong capital levels and ample liquidity to support our clients and communities as they navigate the pandemic. We are offering several programs and services to support our clients, including:
•Consumer, mortgage, and auto loan payment deferrals;
•Small business payment deferrals;
•Consumer and small business fee assistance programs;
•A suspension of foreclosure and repossession actions; and
•A wide range of financial accommodations for our commercial clients based on individual circumstances.
We have included additional disclosure throughout this Item 2 in this Form 10-Q regarding the impact of the pandemic, including with respect to our loan portfolio, income, and funding and liquidity.
We have modified our operations to comply with governmental restrictions and public health authority guidelines. Substantially all non-client facing colleagues are working remotely. A majority of our branches remain open for business through drive-up services and lobbies by appointment only, with certain branches open for walk-in lobby traffic. For those colleagues who work on-site, they are subject to enhanced health and safety protocols.
Additionally, we have implemented a variety of policies and programs to support our colleagues during the pandemic. We have expanded our paid time off programs for all colleagues and added health and welfare benefits for all colleagues, including emergency medical and hardship loans, enhanced health insurance programs, and access to retirement benefits under certain pandemic-related circumstances.
Consistent with our long-standing emphasis on community engagement, we are actively supporting the communities we serve during the pandemic. We have committed $2.5 million from the First Midwest Charitable Foundation to support the immediate and long-term needs of our communities. This commitment does not impact current or future expense. We also recently introduced enhanced matching gift programs to support colleague donations to eligible 501(c)(3) organizations.
For additional information regarding the risks associated with the pandemic and its expected impact on the Company, refer to the section entitled "Risk Factors" in Part II, Item 1A of this Form 10-Q.
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PARK BANK ACQUISITION
On March 9, 2019,2020, the Company completed its acquisition of Bridgeview Bancorp, Inc.Bankmanagers Corp. ("Bridgeview"Bankmanagers"), the holding company for BridgeviewPark Bank, Group.based in Milwaukee Wisconsin. At closing, the Company acquired 13 banking offices located across greater Chicagoland, and added approximately $1.2 billion of assets, $1.0 billion of deposits, and $700$685.5 million of loans, net of fair value adjustments. TheUnder the terms of the merger consideration totaled $135.4 million and consistedagreement, on March 9, 2020, each outstanding share of 4,728,541Bankmanagers common stock was exchanged for 29.9675 shares of Company common stock, plus $623.02 of cash (of which $346.00 per share was paid by Bankmanagers to its shareholders by a special cash dividend immediately prior to closing). This resulted in merger consideration of $174.4 million, which consisted of 4.9 million shares of Company common stock and $37.1$102.5 million inof cash. All BridgeviewGoodwill of $62.4 million associated with the acquisition was recorded by the Company. Park Bank merged into First Midwest Bank and all operating systems were converted to our operating platform duringin the second quarter of 2019.2020.
Northern Oak Wealth Management, Inc.ISSUANCE OF PREFERRED STOCK
On January 16, 2019,During the second quarter of 2020, the Company completed its acquisitionissued 4.3 million depositary shares, each representing a 1/40th interest in a share of Northern Oak Wealth Management, Inc. ("Northern Oak"),the Company's 7.000% Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series A, and 4.9 million depositary shares, each representing a registered investment adviser based1/40th interest in Milwaukee, Wisconsin with approximately $800a share of the Company's Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series C, for an aggregate of $230.5 million. The Company received proceeds of $221.3 million, net of assets under management at closing.underwriting discounts and commissions and issuance costs and expects to use the proceeds for general corporate purposes.
STOCK REPURCHASES
During the first quarter of 2019,On February 26, 2020, the Company announced a new stock repurchase program, that authorizesunder which the Company is authorized to repurchase up to $180$200 million of its outstanding common stock. Stock repurchases under thisstock through December 31, 2021. This stock repurchase program may be made from timereplaces the prior $180 million program, which was scheduled to time on the open market orexpire in privately negotiated transactions, at the discretion of the Company.March 2020. The stock repurchase program does not obligate the Company to repurchase a specific dollar amount or number of shares, and the program may be extended, modified, or discontinued at any time. Repurchases under the Company's repurchase programs are made at prices determined by the Company.
The Company suspended repurchases in March as it shifted its capital deployment strategy in response to the pandemic. Prior to this action, the Company repurchased approximately 1.01.2 million shares of its common stock at a total cost of $21.2$22.6 million during the second quarter of 2019.

six months ended June 30, 2020.
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PERFORMANCE OVERVIEW
Table 1
Selected Financial Data
(Amounts in thousands, except per share data)
 Quarters Ended 
 June 30,		Six Months Ended 
 June 30,
 2020201920202019
Operating Results    
Interest income$162,044  $177,682  $332,271  $340,172  
Interest expense16,810  27,370  43,462  50,836  
Net interest income145,234  150,312  288,809  289,336  
Provision for loan losses32,649  11,491  72,181  21,935  
Noninterest income32,991  38,526  72,353  73,432  
Noninterest expense120,330  114,142  237,661  216,252  
Income before income tax expense25,246  63,205  51,320  124,581  
Income tax expense6,182  16,191  12,650  31,509  
Net income$19,064  $47,014  $38,670  $93,072  
Preferred dividends(1,037) —  (1,037) —  
Net income applicable to non-vested restricted shares(187) (389) (379) (792) 
Net income applicable to common shares$17,840  $46,625  $37,254  $92,280  
Weighted-average diluted common shares outstanding113,336  108,467  111,872  107,126  
Diluted earnings per common share$0.16  $0.43  $0.33  $0.86  
Diluted earnings per common share, adjusted(1)
$0.19  $0.50  $0.41  $0.96  
Performance Ratios    
Return on average common equity(2)
2.94 %8.34 %3.08 %8.50 %
Return on average common equity, adjusted(1)(2)
3.58 %9.68 %3.81 %9.46 %
Return on average tangible common equity(2)
5.32 %13.83 %5.49 %14.11 %
Return on average tangible common equity, adjusted(1)(2)
6.37 %15.95 %6.65 %15.64 %
Return on average assets(2)
0.37 %1.13 %0.40 %1.16 %
Return on average assets, adjusted(1)(2)
0.44 %1.31 %0.49 %1.29 %
Tax-equivalent net interest margin(1)(2)(3)
3.13 %4.06 %3.16 %4.05 %
Tax-equivalent net interest margin, adjusted(1)(2)(3)
2.98 %3.78 %3.05 %3.82 %
Efficiency ratio(1)
64.08 %54.67 %62.12 %55.16 %
 Quarters Ended 
 June 30,		 Six Months Ended 
 June 30,
 2019 2018 2019 2018
Operating Results       
Interest income$177,682
 $142,088
 $340,172
 $273,433
Interest expense27,370
 14,685
 50,836
 27,467
Net interest income150,312
 127,403
 289,336
 245,966
Provision for loan losses11,491
 11,614
 21,935
 26,795
Noninterest income38,526
 36,947
 73,432
 72,464
Noninterest expense114,142
 113,416
 216,252
 208,998
Income before income tax expense63,205
 39,320
 124,581

82,637
Income tax expense16,191
 9,720
 31,509
 19,527
Net income$47,014
 $29,600
 $93,072
 $63,110
Weighted-average diluted common shares outstanding108,467
 102,159
 107,126
 102,049
Diluted earnings per common share$0.43
 $0.29
 $0.86
 $0.61
Diluted earnings per common share, adjusted(1)
$0.50
 $0.40
 $0.96
 $0.72
Performance Ratios       
Return on average common equity(2)
8.34% 6.23% 8.50% 6.70%
Return on average common equity, adjusted(1)(2)
9.68% 8.62% 9.46% 7.91%
Return on average tangible common equity(2)
13.83% 10.83% 14.11% 11.65%
Return on average tangible common equity, adjusted(1)(2)
15.95% 14.81% 15.64% 13.67%
Return on average assets(2)
1.13% 0.81% 1.16% 0.88%
Return on average assets, adjusted(1)(2)
1.31% 1.12% 1.29% 1.04%
Tax-equivalent net interest margin(1)(2)(3)
4.06% 3.91% 4.05% 3.85%
Efficiency ratio(1)
54.67% 59.65% 55.16% 60.28%
(1)This item is a non-GAAP financial measure. For a discussion of non-GAAP financial measures, see the section of this Item 2 titled "Non-GAAP Financial Information and Reconciliations."
(1)
This item is a non-GAAP financial measure. For a discussion of non-GAAP financial measures, see the section of this Item 2 titled "Non-GAAP Financial Information and Reconciliations."
(2)
These ratios are presented on an annualized basis.
(3)
See the section of this Item 2 titled "Earnings Performance"
(2)These ratios are presented on an annualized basis.
(3)See the section of this Item 2 titled "Earnings Performance" below for additional discussion and calculation of this financial measure.

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 As ofJune 30, 2020 
 Change From
June 30,
2020		December 31,
2019		June 30,
2019		December 31,
2019		June 30,
2019
Balance Sheet Highlights     
Total assets$21,244,881  $17,850,397  $17,462,233  $3,394,484  $3,782,648  
Total loans14,933,658  12,840,330  12,519,604  2,093,328  2,414,054  
Total deposits15,657,656  13,251,278  13,188,588  2,406,378  2,469,068  
Core deposits13,301,389  10,217,824  10,236,783  3,083,565  3,064,606  
Loans to deposits95.4 %96.9 %94.9 %  
Core deposits to total deposits85.0 %77.1 %77.6 %  
Asset Quality Highlights     
Non-accrual loans, excluding PCD
  loans(1)(2)
$94,044  $82,269  $63,477  $11,775  $30,567  
Non-accrual PCD loans(1)
45,116  —  —  45,116  45,116  
Total non-accrual loans139,160  82,269  63,477  56,891  75,683  
90 days or more past due loans, still
  accruing interest(1)
3,241  5,001  2,615  (1,760) 626  
Total non-performing loans142,401  87,270  66,092  55,131  76,309  
Accruing troubled debt
restructurings ("TDRs")		1,201  1,233  1,441  (32) (240) 
Foreclosed assets(3)
19,024  20,458  28,488  (1,434) (9,464) 
Total non-performing assets$162,626  $108,961  $96,021  $53,665  $66,605  
30-89 days past due loans(1)
$36,342  $31,958  $34,460  $4,384  $1,882  
Non-performing assets to total loans plus
foreclosed assets		1.09 %0.85 %0.77 %
Non-performing assets to total loans plus
  foreclosed assets, excluding PCD and
  PPP loans(1)(2)(5)
0.87 %0.85 %0.77 %
Allowance for Credit Losses
Allowance for credit losses$247,677  $109,222  $106,929  $138,455  $140,748  
Allowance for credit losses to total loans(4)
1.66 %0.85 %0.85 %
Allowance for credit losses to
  total loans, excluding PPP loans(4)(5)
1.80 %0.85 %0.85 %
Allowance for credit losses to
non-accrual loans		177.98 %132.76 %168.45 %  

 As of June 30, 2019 
 Change From
June 30,
2019		 December 31,
2018		 June 30,
2018		 December 31,
2018		 June 30,
2018
Balance Sheet Highlights         
Total assets$17,462,233
 $15,505,649
 $14,818,076
 $1,956,584
 $2,644,157
Total loans12,519,604
 11,446,783
 10,891,565
 1,072,821
 1,628,039
Total deposits13,188,588
 12,084,112
 11,492,263
 1,104,476
 1,696,325
Core deposits10,236,783
 9,543,208
 9,567,902
 693,575
 668,881
Loans to deposits94.9% 94.7% 94.8%    
Core deposits to total deposits77.6% 79.0% 83.3%    
Asset Quality Highlights         
Non-accrual loans$63,477
 $56,935
 $53,475
 $6,542
 $10,002
90 days or more past due loans, still
  accruing interest(1)
2,615
 8,282
 7,954
 (5,667) (5,339)
Total non-performing loans66,092
 65,217
 61,429
 875
 4,663
Accruing troubled debt
restructurings ("TDRs")		1,441
 1,866
 1,760
 (425) (319)
Foreclosed assets(2)
28,488
 12,821
 12,892
 15,667
 15,596
Total non-performing assets$96,021
 $79,904
 $76,081
 $16,117
 $19,940
30-89 days past due loans(1)
$34,460
 $37,524
 $39,171
 $(3,064) $(4,711)
Non-performing assets to total loans plus
foreclosed assets		0.77% 0.70% 0.70%    
Allowance for Credit Losses         
Allowance for credit losses$106,929
 $103,419
 $97,691
 $3,510
 $9,238
Allowance for credit losses to
total loans(3)
0.85% 0.90% 0.90%    
Allowance for credit losses to
total loans, excluding acquired loans(4)
0.98% 1.01% 1.00%    
Allowance for credit losses to
non-accrual loans(3)
168.45% 181.64% 182.69%    
(1)
(1)
Purchased credit impaired ("PCI") loans with an accretable yield are considered current and are not included in past due loan totals.
(2)
Foreclosed assets consists of OREO and other foreclosed assets acquired in partial or total satisfaction of defaulted loans. Other foreclosed assets are included in other assets in the Consolidated Statements of Financial Condition.
(3)
This ratio includes acquired loans that are recorded at fair value through an acquisition adjustment, which incorporates credit risk as of the acquisition date with no allowance for credit losses being established at that time. As the acquisition adjustment is accreted into income over future periods, an allowance for credit losses is established as necessary to reflect credit deterioration. A discussion of the allowance for acquired loan losses and the related acquisition adjustment is presented in the section titled "Loan Portfolio and Credit Quality."
(4)
This item is a non-GAAP financial measure. For a discussion of non-GAAP financial measures, see the section of this Item 2 titled "Non-GAAP Financial Information and Reconciliations."
Net income for the second quarter and first six months of 2019 was $47.0 million, or $0.43 per share, and $93.1 million, or $0.86 per share, respectively. Reported results for all periods presented were impacted by implementation costs relatedPrior to the Company's Delivering Excellence initiative(1)adoption of CECL on January 1, 2020, purchased credit impaired ("Delivering Excellence"PCI"). loans with an accretable yield were considered current and were not included in past due loan totals. In addition, PCI loans with an accretable yield were excluded from non-accrual loans. Subsequent to adoption, PCD loans, including those previously classified as PCI, are included in past due and non-accrual loan totals. In addition, an allowance for credit losses is established as of the second quarteracquisition date or upon the adoption of CECL for loans previously classified as PCI, as PCD loans are no longer recorded net of a credit-related acquisition adjustment.
(2)This item is a non-GAAP financial measure. For a discussion of non-GAAP financial measures, see the section of this Item 2 titled "Non-GAAP Financial Information and first six monthsReconciliations."
(3)Foreclosed assets consists of 2019 were impacted by acquisitionother real estate owned ("OREO") and integration related expenses. Excluding these expenses, net income forother foreclosed assets acquired in partial or total satisfaction of defaulted loans. Other foreclosed assets are included in other assets in the second quarter and first six monthsConsolidated Statements of 2019 was $54.5 million, or $0.50 per share, and $103.5 million, or $0.96 per share, respectively, compared to $40.9 million, or $0.40 per share, and $74.4 million, or $0.72 per share, for the same periods in 2018. The increase in net income, adjusted, and earnings per share, adjusted, comparedFinancial Condition.
(4)Prior to the second quarteradoption of CECL on January 1, 2020, this ratio included acquired loans that were recorded at fair value through an acquisition adjustment netted in loans. Subsequent to adoption, an allowance for credit losses on acquired loans is established as of the acquisition date and first six monthsthe acquired loans are no longer recorded net of 2018 reflects higher net interest income and noninterest income and lower provisiona credit-related acquisition adjustment.
(5)This ratio excludes PPP loans that are expected to be forgiven. As a result, no allowance for loancredit losses partially offset by higher noninterest expense andis associated with these loans. See the "Non-GAAP Financial Information" section presented later in this release for a higher effective income tax rate. A discussion of net interest income, noninterest income, noninterest expense, and income tax expense is presented in the following section titled "Earnings Performance."this non-GAAP financial measure.
Total loans of $12.5 billion grew $1.1 billion, or 9.4%, from December 31, 2018.
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(1) The Company initiated certain actions in connection with its Delivering Excellence initiative in the second quarter of 2018, demonstrating the Company's ongoing commitment to provide service excellence to its clients and maximizing both the efficiency and scalability of its operating platform.

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Non-performing assets to total loans plus foreclosed assets was 0.77% at June 30, 2019, compared to 0.70% at both December 31, 2018 and June 30, 2018. 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 foreclosed assets.
EARNINGS PERFORMANCE
Net Interest Income
Net interest income is our primary source of revenue and is impacted by interest rates and the volume and mix of interest-earning assets and interest-bearing liabilities. The accounting policies for the recognition of interest income on loans, securities, and other interest-earning assets are presented in Note 1 to the Consolidated Financial Statements included in our 20182019 10-K.
Our accounting and reporting policies conform to GAAP and general practices within the banking industry. For purposes of this discussion, both net interest income and net interest margin have been adjusted to a fully tax-equivalent basis to more appropriately compare the returns on certain tax-exempt loans and securities to those on taxable interest-earning assets. The effect of this adjustment is shown at the bottom of Table 2 below. Although we believe that these non-GAAP financial measures enhance investors' understanding of our business and performance, they should not be considered an alternative to GAAP. For a discussion of non-GAAP financial measures, see the section of this Item 2 titled "Non-GAAP Financial Information and Reconciliations."
Table 2 summarizes our average interest-earning assets and interest-bearing liabilities for the quarters ended June 30, 20192020 and 2018,2019, the related interest income and interest expense for each earning asset category and funding source, and the average interest rates earned and paid. Table 2 also details differences in interest income and expense from the prior quarter and the extent to which any changes are attributable to volume and rate fluctuations. Table 3 below presents this same information for the six months ended June 30, 20192020 and 2018.2019.
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Table 2
Net Interest Income and Margin Analysis
(Dollar amounts in thousands)
 Quarters Ended June 30,Attribution of Change
in Net Interest Income
 20202019
 Average
Balance		InterestYield/
Rate (%)		Average
Balance		InterestYield/
Rate (%)		VolumeYield/
Rate		Total
Assets         
Other interest-earning assets$646,887  $471  0.29  $210,322  $1,240  2.36  $2,574  $(3,343) $(769) 
Securities(1)
3,357,984  21,040  2.51  2,631,437  18,423  2.80  4,234  (1,617) 2,617  
Federal Home Loan Bank
("FHLB") and Federal Reserve
Bank ("FRB") stock		154,678  368  0.95  87,815  757  3.45  577  (966) (389) 
Loans, excluding PPP loans(1)
13,729,250  135,952  3.98  12,022,470  158,442  5.29  70,752  (93,242) (22,490) 
PPP loans(1)
887,997  5,368  2.43  —  —  —  2,326  3,042  5,368  
Total loans(1)(2)
14,617,247  141,320  3.89  12,022,470  158,442  5.29  73,078  (90,200) (17,122) 
Total interest-earning assets(1)(2)
18,776,796  163,199  3.49  14,952,044  178,862  4.80  80,463  (96,126) (15,663) 
Cash and due from banks275,696    215,464       
Allowance for loan losses(224,519)   (108,698)      
Other assets2,040,133    1,681,240       
Total assets$20,868,106    $16,740,050       
Liabilities and Stockholders' Equity        
Savings deposits$2,246,643  99  0.02  $2,079,852  346  0.07  31  (278) (247) 
NOW accounts2,549,088  637  0.10  2,261,103  2,776  0.49  408  (2,547) (2,139) 
Money market deposits2,663,622  1,157  0.17  1,907,766  3,041  0.64  2,254  (4,138) (1,884) 
Time deposits2,539,996  8,184  1.30  2,849,930  13,153  1.85  (1,316) (3,653) (4,969) 
Borrowed funds2,466,300  3,156  0.51  1,025,351  4,459  1.74  6,268  (7,571) (1,303) 
Senior and subordinated debt234,259  3,577  6.14  220,756  3,595  6.53  251  (269) (18) 
Total interest-bearing
liabilities		12,699,908  16,810  0.53  10,344,758  27,370  1.06  7,896  (18,456) (10,560) 
Demand deposits5,305,109    3,835,567      
Total funding sources18,005,017  0.38  14,180,325  0.77  
Other liabilities361,311    318,156       
Stockholders' equity2,501,778    2,241,569       
Total liabilities and
stockholders' equity		$20,868,106    $16,740,050       
Tax-equivalent net interest
  income/margin(1)
 146,389  3.13   151,492  4.06  $72,567  $(77,670) $(5,103) 
Tax-equivalent adjustment (1,155)   (1,180)     
Net interest income (GAAP) $145,234    $150,312      
Impact of acquired loan
  accretion(1)
$6,999  0.15  $10,308  0.28  
Tax-equivalent net interest income/
  margin, adjusted(1)
$139,390  2.98  $141,184  3.78  
 Quarters Ended June 30,  
Attribution of Change
in Net Interest Income
 2019  2018  
 
Average
Balance
 Interest 
Yield/
Rate (%)
  
Average
Balance
 Interest 
Yield/
Rate (%)
  Volume 
Yield/
Rate
 Total
Assets                   
Other interest-earning assets$210,322
 $1,240
 2.36  $147,996
 $519
 1.41  $275
 $446
 $721
Securities(1)
2,631,437
 18,423
 2.80  2,165,091
 13,322
 2.46  3,074
 2,027
 5,101
Federal Home Loan Bank
  ("FHLB") and Federal Reserve
  Bank ("FRB") stock
87,815
 757
 3.45  80,038
 864
 4.32  100
 (207) (107)
Loans(1)(2)
12,022,470
 158,442
 5.29  10,788,285
 128,422
 4.77  15,504
 14,516
 30,020
Total interest-earning assets(1)(2)
14,952,044
 178,862
 4.80  13,181,410
 143,127
 4.35  18,953
 16,782
 35,735
Cash and due from banks215,464
      197,025
           
Allowance for loan losses(108,698)      (99,469)           
Other assets1,681,240
      1,326,749
           
Total assets$16,740,050
      $14,605,715
           
Liabilities and Stockholders' Equity                  
Savings deposits$2,079,852
 346
 0.07  $2,060,066
 373
 0.07  4
 (31) (27)
NOW accounts2,261,103
 2,776
 0.49  2,065,530
 1,472
 0.29  151
 1,153
 1,304
Money market deposits1,907,766
 3,041
 0.64  1,759,313
 1,073
 0.24  98
 1,870
 1,968
Time deposits2,849,930
 13,153
 1.85  1,871,666
 5,114
 1.10  3,468
 4,571
 8,039
Borrowed funds1,025,351
 4,459
 1.74  913,902
 3,513
 1.54  455
 491
 946
Senior and subordinated debt220,756
 3,595
 6.53  195,385
 3,140
 6.45  415
 40
 455
Total interest-bearing
  liabilities
10,344,758
 27,370
 1.06  8,865,862
 14,685
 0.66  4,591
 8,094
 12,685
Demand deposits3,835,567
      3,621,645
           
Total funding sources14,180,325
   0.77  12,487,507
   0.47       
Other liabilities318,156
      227,481
           
Stockholders' equity – common
2,241,569
      1,890,727
           
Total liabilities and
  stockholders' equity
$16,740,050
      $14,605,715
           
Tax-equivalent net interest
  income/margin(1)
  151,492
 4.06    128,442
 3.91  $14,362
 $8,688
 $23,050
Tax-equivalent adjustment  (1,180)      (1,039)         
Net interest income (GAAP)  $150,312
      $127,403
         
Impact of acquired loan
  accretion(1)
  $10,308
 0.28    $4,445
 0.14       
Tax-equivalent net interest income/
  margin, adjusted(1)
  $141,184
 3.78    $123,997
 3.77       
(1)(1)Interest income and yields on tax-exempt securities and loans are presented on a tax-equivalent basis, assuming a federal income tax rate of 21%. The corresponding income tax impact related to tax-exempt items is recorded in income tax expense. These adjustments have no impact on net income. See the section of this Item 2 titled "Non-GAAP Financial Information and Reconciliations" for a discussion of this non-GAAP financial measure.
Interest income and yields on tax-exempt securities and loans are presented on a tax-equivalent basis, assuming a federal income tax rate of 21%. The corresponding income tax impact related to tax-exempt items is recorded in income tax expense. These adjustments have no impact on net income. See the section of this Item 2 titled "Non-GAAP Financial Information and Reconciliations" for a discussion of this non-GAAP financial measure.
(2)
Non-accrual loans, which totaled $63.5 million as of June 30, 2019 and $53.5 million as of June 30, 2018, are included in loans for purposes of this analysis. Additional detail regarding non-accrual loans is presented in the following section of this Item 2 titled "Non-performing Assets and Corporate Performing Potential Problem Loans."

(2)Non-accrual loans, which totaled $139.2 million as of June 30, 2020 and $63.5 million as of June 30, 2019, are included in loans for purposes of this analysis. Additional detail regarding non-accrual loans is presented in the following section of this Item 2 titled "Non-performing Assets and Corporate Performing Potential Problem Loans."

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Table 3
Net Interest Income and Margin Analysis
(Dollar amounts in thousands)
 Six Months Ended June 30,Attribution of Change
in Net Interest Income
 20202019
 Average
Balance		InterestYield/
Rate (%)		Average
Balance		InterestYield/
Rate (%)		VolumeYield/
Rate		Total
Assets
Other interest-earning assets$405,619  $1,287  0.64  $168,203  $1,968  2.36  $2,778  $(3,459) $(681) 
Securities(1)
3,212,279  41,797  1.73  2,502,282  34,810  2.78  9,060  (2,073) 6,987  
FHLB and FRB stock140,661  1,755  1.66  83,840  1,709  4.08  108  (62) 46  
Loans, excluding PPP loans(1)
13,401,500  284,372  4.27  11,741,910  303,973  5.22  201,538  (221,160) (19,622) 
PPP loans(1)
443,999  5,368  2.43  —  —  —  2,593  2,775  5,368  
Total loans(1)(2)
13,845,499  289,740  4.21  11,741,910  303,973  5.22  204,131  (218,385) (14,254) 
Total interest-earning assets(1)(2)
17,604,058  334,579  3.65  14,496,235  342,460  4.76  216,077  (223,979) (7,902) 
Cash and due from banks268,516  208,819  
Allowance for loan losses(201,956) (108,112) 
Other assets1,965,845  1,609,964  
Total assets$19,636,463  $16,206,906  
Liabilities and Stockholders' Equity
Savings deposits$2,157,903  262  0.02  $2,058,958  692  0.07  35  (465) (430) 
NOW accounts2,411,122  2,267  0.19  2,172,725  4,938  0.46  615  (3,286) (2,671) 
Money market deposits2,445,664  4,257  0.35  1,858,772  5,390  0.58  4,259  (5,392) (1,133) 
Time deposits2,736,231  20,408  1.50  2,749,182  24,898  1.83  (116) (4,374) (4,490) 
Borrowed funds2,237,000  8,997  0.81  952,080  8,010  1.70  1,609  (622) 987  
Senior and subordinated debt234,157  7,271  6.24  212,375  6,908  6.56  651  (288) 363  
Total interest-bearing
liabilities		12,222,077  43,462  0.72  10,004,092  50,836  1.02  7,053  (14,427) (7,374) 
Demand deposits4,594,562  3,712,209    
Total funding sources16,816,639  0.52  13,716,301  0.75  
Other liabilities361,357  300,395    
Stockholders' equity2,458,467  2,190,210    
Total liabilities and
stockholders' equity		$19,636,463  $16,206,906    
Tax-equivalent net interest
  income/margin(1)
291,117  3.16  291,624  4.05  $209,024  $(209,552) $(528) 
Tax-equivalent adjustment (2,308) (2,288) 
Net interest income (GAAP) $288,809  $289,336  
Impact of acquired loan
  accretion(1)
$13,945  0.11  $16,677  0.23  
Tax-equivalent net interest income/
  margin, adjusted(1)
$277,172  3.05  $274,947  3.82  
 Six Months Ended June 30,  Attribution of Change
in Net Interest Income
 2019  2018  
 Average
Balance		 Interest Yield/
Rate (%)		  Average
Balance		 Interest Yield/
Rate (%)		  Volume Yield/
Rate		 Total
Assets                   
Other interest-earning assets$168,203
 $1,968
 2.36  $130,166
 $942
 1.46  $330
 $696
 $1,026
Securities(1)
2,502,282
 34,810
 2.78  2,114,439
 25,464
 2.41  5,182
 4,164
 9,346
FHLB and FRB stock83,840
 1,709
 4.08  78,469
 1,302
 3.32  94
 313
 407
Loans(1)(2)
11,741,910
 303,973
 5.22  10,644,581
 247,739
 4.69  26,912
 29,322
 56,234
Total interest-earning assets(1)(2)
14,496,235
 342,460
 4.76  12,967,655
 275,447
 4.28  32,518
 34,495
 67,013
Cash and due from banks208,819
      189,452
           
Allowance for loan losses(108,112)      (99,352)           
Other assets1,609,964
      1,339,785
           
Total assets$16,206,906
      $14,397,540
           
Liabilities and Stockholders' Equity                  
Savings deposits$2,058,958
 692
 0.07  $2,037,995
 742
 0.07  8
 (58) (50)
NOW accounts2,172,725
 4,938
 0.46  2,029,303
 2,520
 0.25  190
 2,228
 2,418
Money market deposits1,858,772
 5,390
 0.58  1,786,534
 1,897
 0.21  80
 3,413
 3,493
Time deposits2,749,182
 24,898
 1.83  1,803,787
 9,052
 1.01  6,250
 9,596
 15,846
Borrowed funds952,080
 8,010
 1.70  886,253
 6,992
 1.59  538
 480
 1,018
Senior and subordinated debt212,375
 6,908
 6.56  195,314
 6,264
 6.47  554
 90
 644
Total interest-bearing
liabilities		10,004,092
 50,836
 1.02  8,739,186
 27,467
 0.63  7,620
 15,749
 23,369
Demand deposits3,712,209
      3,544,666
           
Total funding sources13,716,301
   0.75  12,283,852
   0.45       
Other liabilities300,395
      231,567
           
Stockholders' equity – common
2,190,210
      1,882,121
           
Total liabilities and
stockholders' equity		$16,206,906
      $14,397,540
           
Tax-equivalent net interest
income/margin(1)
  291,624
 4.05    247,980
 3.85  $24,898
 $18,746
 $43,644
Tax-equivalent adjustment  (2,288)      (2,014)         
Net interest income (GAAP)  $289,336
      $245,966
         
Impact of acquired loan
accretion(1)
  $16,677
 0.23    $9,557
 0.15       
Tax-equivalent net interest income/
  margin, adjusted(1)
  $274,947
 3.82    $238,423
 3.70       
(1)Interest income and yields on tax-exempt securities and loans are presented on a tax-equivalent basis, assuming a federal income tax rate of 21%. The corresponding income tax impact related to tax-exempt items is recorded in income tax expense. These adjustments have no impact on net income. See the section of this Item 2 titled "Non-GAAP Financial Information and Reconciliations" for a discussion of this non-GAAP financial measure.
(1)
(2)Non-accrual loans, which totaled $139.2 million as of June 30, 2020 and $63.5 million as of June 30, 2019, are included in loans for purposes of this analysis. Additional detail regarding non-accrual loans is presented in the following section of this Item 2 titled "Non-performing Assets and Corporate Performing Potential Problem Loans."
Interest income and yields on tax-exempt securities and loans are presented on a tax-equivalent basis, assuming a federal income tax rate of 21%. The corresponding income tax impact related to tax-exempt items is recorded in income tax expense. These adjustments have no impact on net income. See the section of this Item 2 titled "Non-GAAP Financial Information and Reconciliations" for a discussion of this non-GAAP financial measure.
(2)
Non-accrual loans, which totaled $63.5 million as of June 30, 2019 and $53.5 million as of June 30, 2018, are included in loans for purposes of this analysis. Additional detail regarding non-accrual loans is presented in the following section of this Item 2 titled "Non-performing Assets and Corporate Performing Potential Problem Loans."
Net interest income for the second quarter and first six months of 20192020 was up 18.0% and 17.6%down 3.4% compared to the second quarter of 2019 and consistent with the first six months of 2018, respectively. The rise in2019. Compared to both prior periods, net interest income resulted primarily fromwas impacted by lower interest rates, partially offset by growth in loans and securities, the acquisition of interest-earning assets from the Park Bank and Bridgeview transactionBank ("Bridgeview") transactions that closed in the second quarter ofMarch 2020 and May 2019, respectively, and Northern States Financial Corporation ("Northern States") transaction in the fourth quarter of 2018, higher interest rates, securities purchases, loan growth, and higher acquired loan accretion, partially offset by higherlower cost of funds.

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Acquired loan accretion contributed $10.3$7.0 million and $16.7$13.9 million to net interest income for the second quarter and first six months of 2019,2020, respectively, higherlower than $4.4the $10.3 million and $9.6$16.7 million for the same periods in 2018.2019.
Tax-equivalent net interest margin for the second quarter and first six months of 20192020 was 4.06%3.13% and 4.05%3.16%, respectively, increasing 15decreasing 93 basis points and 2089 basis points from the same periods in 2018.2019. Excluding the impact of acquired loan accretion, tax-equivalent net interest margin was 3.78%2.98% and 3.82%3.05% for the second quarter and first six months of 2019, up one2020, down 80 basis pointpoints and 1277 basis points from the same periods in 2018. The increase in2019. Compared to both prior periods, tax-equivalent net interest margin compared to both prior periods was driven primarily by higherdecreased as a result of lower interest rates partially offset by compression related to the mixon loans and securities, origination of interest-earning assets acquired in the Bridgeview transaction,PPP loans, actions taken to reduce rate sensitivity, as well as a higher balance of other interest-earning assets due to higher demand deposits as a result of PPP loan funds and higherother government stimuli, partially offset by lower cost of funds.
For the second quarter and the first six months of 2019,2020, total average interest-earning assets rose by $1.8$3.8 billion and $1.5$3.1 billion from the same periods in 2018.2019. The increase resulted primarily from the Park Bank and Bridgeview transactions, PPP loans and Northern States transactions,other loan growth, securities purchases, and security purchases.a higher balance of other interest-earning assets.
Total average funding sources for the second quarter and first six months of 20192020 increased by $1.7$3.8 billion and $1.4$2.2 billion from the same periods in 2018,2019, due primarily to the Park Bank and Bridgeview transactions, FHLB advances, and Northern States transactionshigher customer balances resulting from PPP funds and organic growth.other government stimulus.
Noninterest Income
A summary of noninterest income for the quarters and six months ended June 30, 20192020 and 20182019 is presented in the following table.
Table 4
Noninterest Income Analysis
(Dollar amounts in thousands)
 Quarters Ended 
 June 30,		 Six Months Ended 
 June 30,		 
 20202019% Change20202019% Change
Wealth management fees$11,942  $12,190  (2.0) $24,303  $23,790  2.2  
Service charges on deposit accounts9,125  12,196  (25.2) 20,906  23,736  (11.9) 
Mortgage banking income3,477  1,901  82.9  5,265  2,905  81.2  
Card-based fees, net (1)
3,180  4,549  (30.1) 7,148  8,927  (19.9) 
Capital market products income694  2,154  (67.8) 5,416  3,433  57.8  
Other service charges, commissions, and
fees		2,078  2,783  (25.3) 4,760  5,394  (11.8) 
Total fee-based revenues30,496  35,773  (14.8) 67,798  68,185  (0.6) 
Other income(2)
2,495  2,753  (9.4) 5,560  5,247  6.0  
Net securities losses—  —  —  (1,005) —  —  
Total noninterest income$32,991  $38,526  (14.4) $72,353  $73,432  (1.5) 
  Quarters Ended 
 June 30,		   Six Months Ended 
 June 30,		  
  2019 2018 % Change 2019 2018 % Change
Service charges on deposit accounts $12,196
 $12,058
 1.1
 $23,736
 $23,710
 0.1
Wealth management fees 12,190
 10,981
 11.0
 23,790
 21,939
 8.4
Card-based fees, net (1)
 4,549
 4,394
 3.5
 8,927
 8,327
 7.2
Capital market products income 2,154
 2,819
 (23.6) 3,433
 4,377
 (21.6)
Mortgage banking income 1,901
 1,736
 9.5
 2,905
 4,133
 (29.7)
Merchant servicing fees, net 371
 383
 (3.1) 708
 713
 (0.7)
Other service charges, commissions, and
  fees
 2,412
 2,455
 (1.8) 4,686
 4,673
 0.3
Total fee-based revenues 35,773
 34,826
 2.7
 68,185
 67,872
 0.5
Other income(2)
 2,753
 2,121
 29.8
 5,247
 4,592
 14.3
Total noninterest income $38,526
 $36,947
 4.3
 $73,432
 $72,464
 1.3
(1)Card-based fees, net consists of debit and credit card interchange fees for processing transactions, various fees on both consumer and non-customer automated teller machine ("ATM") and point-of-sale transactions processed through the ATM and point-of-sale networks, as well as the related cardholder expense.
(1)
(2)Other income consists of various items, including BOLI income, safe deposit box rentals, miscellaneous recoveries, and gains on the sales of various assets.
Card-based fees, net consists of debit and credit card interchange fees for processing transactions, various fees on both consumer and non-customer automated teller machine ("ATM") and point-of-sale transactions processed through the ATM and point-of-sale networks, as well as the related cardholder expense.
(2)
Other income consists of various items, including BOLI income, safe deposit box rentals, miscellaneous recoveries, and gains on the sales of various assets.
Total noninterest income of $38.5$33.0 million and $73.4$72.4 million for the second quarter and first six months of 2019,2020, respectively, was up 4.3%down 14.4% and 1.3%1.5% from the same periods in 2018.2019. The increasedecrease in wealth management fees was driven primarily by services provided to customers acquired in the Northern Oak transaction and the positive impact of market rates. The rise incharges on deposit accounts, net card-based fees, benefitted from higher transaction volumes and services provided to customers acquired in the Bridgeviewother service charges, commissions and Northern States transactionsfees compared to both prior periods. Capital market products income fluctuates from periodperiods was due primarily to period based on the sizeimpact of lower transaction volumes and frequencythe fee assistance programs offered to our clients as a result of sales to corporate clients.the pandemic.
Mortgage banking income for the second quarter and first six months of 20192020 resulted from sales of $93.5$168.7 million and $150.9$285.3 million respectively, of 1-4 family mortgage loans in the secondary market, compared to $64.3$93.5 million and $128.1$150.9 million for the same periods in 2018. Mortgage banking2019. Capital market products income is also impacted by fluctuations infor the fair valuesecond quarter of mortgage servicing rights, which resulted in a decrease to mortgage banking income of $600,000 and $1.7 million2020 decreased compared to the second quarter andof 2019 as a result of lower levels of sales to corporate clients in light of market conditions. Compared to the first six months of 2018, respectively.

2019, capital market products income increased as a result of higher sales to corporate clients during the first quarter of 2020 reflecting the lower long-term rate environment.
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Net securities losses of $1.0 million were recognized during the first six months of 2020 as a result of repositioning of the Company's securities portfolio due to market conditions.
Other income was elevated compared to both prior periods due primarily to higher fair value adjustments on equity securities and benefit settlements on bank-owned life insurance.
Noninterest Expense
A summary of noninterest expense for the quarters and six months ended June 30, 20192020 and 20182019 is presented in the following table.
Table 5
Noninterest Expense Analysis
(Dollar amounts in thousands)
 Quarters Ended 
 June 30,		 Six Months Ended 
 June 30,		 
 20202019% Change20202019% Change
Salaries and employee benefits:
Salaries and wages$52,592  $47,776  10.1  $102,582  $93,911  9.2  
Retirement and other employee benefits11,080  10,916  1.5  23,949  22,154  8.1  
Total salaries and employee benefits63,672  58,692  8.5  126,531  116,065  9.0  
Net occupancy and equipment expense15,116  12,294  23.0  29,343  26,091  12.5  
Technology and related costs9,853  7,128  38.2  18,401  13,398  37.3  
Professional services8,880  9,624  (7.7) 19,270  16,711  15.3  
Advertising and promotions2,810  3,167  (11.3) 5,571  5,539  0.6  
Net OREO expense126  294  57.1  546  975  (44.0) 
Other expenses14,624  12,987  12.6  27,278  23,568  15.7  
Acquisition and integration related
expenses		5,249  9,514  (44.8) 10,721  13,205  (18.8) 
Delivering Excellence implementation
costs		—  442  (100.0) —  700  (100.0) 
Total noninterest expense$120,330  $114,142  5.4  $237,661  $216,252  9.9  
Acquisition and integration related
expenses		(5,249) (9,514) (44.8) (10,721) (13,205) (18.8) 
Delivering Excellence implementation
costs		—  (442) (100.0) —  (700) (100.0) 
Total noninterest expense, adjusted(1)
$115,081  $104,186  10.5  $226,940  $202,347  12.2  
  Quarters Ended 
 June 30,		   Six Months Ended 
 June 30,		  
  2019 2018 % Change 2019 2018 % Change
Salaries and employee benefits:            
Salaries and wages $47,776
 $46,256
 3.3
 $93,911
 $92,086
 2.0
Retirement and other employee benefits 10,916
 11,676
 (6.5) 22,154
 22,633
 (2.1)
Total salaries and employee benefits 58,692
 57,932
 1.3
 116,065
 114,719
 1.2
Net occupancy and equipment expense 13,671
 13,651
 0.1
 28,441
 27,424
 3.7
Professional services 10,467
 8,298
 26.1
 18,255
 15,878
 15.0
Technology and related costs 4,908
 4,837
 1.5
 9,504
 9,608
 (1.1)
Advertising and promotions 3,167
 2,061
 53.7
 5,539
 3,711
 49.3
Net OREO expense 294
 (256) (214.8) 975
 812
 20.1
Other expenses 12,987
 11,878
 9.3
 23,568
 21,831
 8.0
Acquisition and integration related
  expenses
 9,514
 —
 100.0
 13,205
 —
 —
Delivering Excellence implementation
  costs
 442
 15,015
 (97.1) 700
 15,015
 (95.3)
Total noninterest expense $114,142
 $113,416
 0.6
 $216,252
 $208,998
 3.5
Acquisition and integration related
  expenses
 (9,514) —
 (100.0) (13,205) —
 —
Delivering Excellence implementation
  costs
 (442) (15,015) (97.1) (700) (15,015) (95.3)
Total noninterest expense, adjusted(1)
 $104,186
 $98,401
 5.9
 $202,347
 $193,983
 4.3

(1)
(1)This item is a non-GAAP financial measure. For a discussion of non-GAAP financial measures, see the section of this Item 2 titled "Non-GAAP Financial Information and Reconciliations."
This item is a non-GAAP financial measure. For a discussion of non-GAAP financial measures, see the section of this Item 2 titled "Non-GAAP Financial Information and Reconciliations."
Total noninterest expense was consistent withincreased 5.4% and 9.9% from the second quarter of 2018 and increased 3.5% from the first six months of 2018.2019, respectively. Noninterest expense for all periods presented was impacted by costsacquisition and integration related to the implementation of the Company's Delivering Excellence initiative. In addition, theexpenses. The second quarter and first six months of 2019 werewas impacted by acquisition and integrationcosts related expenses.to implementation of the Company's Delivering Excellence initiative. Excluding these items, noninterest expense for the second quarter and first six months of 20192020, respectively, was $104.2$115.1 million and $202.3$226.9 million, respectively, up 5.9%10.5% and 4.3%12.2% from the same periods in 2018.2019. Overall, noninterest expense, adjusted, to average assets, excluding PPP loans was well controlled at 2.32% and 2.38% for the second quarter and first six months of 2020, respectively, down 18 basis points and 14 basis points from the second quarter and first six months of 2019, respectively.
Operating costs associated with the Bridgeview, Northern Oak,Park Bank and Northern StatesBridgeview transactions contributed to the increase in noninterest expense for the second quarter and first six months of 2019.2020. These costs primarily occurred in salaries and employee benefits, net occupancy and equipment expense, professional services, technology and related costs, and other expenses.
Compared to the second quarter and first six months of 2018,both prior periods, the increase in salaries and employee benefits was also impacted by merit increases, which was more thancommissions resulting from sales of 1-4 family mortgage loans in the secondary market, and expanded health and welfare benefits related to the pandemic, partially offset by lower incentive compensation expenses and equity compensation valuations. Expenses from the ongoing benefits ofpandemic contributed to the Delivering Excellence initiative and lower pension expense. Netincrease in occupancy and equipment expense was impacted by the adoption of lease accounting guidance in the first quarter of 2019. As a result, a deferred gain relatedcosts compared to a prior sale-leaseback transaction was no longer included as a reduction in net occupancy and equipment expense in the amount of approximately $1.5 million quarterly. Net occupancy and equipment expense for the second quarter and first six months of 2018 was elevated due to costs related to the Company's corporate headquarters relocation. The increase in professional services from both prior periods was driven mainly by the timing of certain other professional fees associated with organizational growth and higher loan remediation costs and legal fees.periods. Compared to both prior periods, the riseincrease in advertisingtechnology and promotions expense resulted from higherrelated costs related to marketing campaigns.

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Net OREO expense for the second quarter of 2018 was impacted by higher levelsinvestments in technology, including certain costs associated with the origination of operating income. The rise in otherPPP loans. Professional services was positively impacted by lower loan remediation expenses compared to both prior periods was alsoperiods. For the first six months of 2020, professional services were impacted by propertyprocess enhancements and expenses associated with higher capital market products income. Compared to both prior periods, other expenses increased as a result of a valuation adjustmentsadjustment on a foreclosed asset, higher servicing fees from purchases of consumer loans and other miscellaneous expenses.expenses associated with organizational growth.
51



Acquisition and integration related expenses for the second quarter and first six months of 2020 resulted primarily from the Park Bank and Bridgeview acquisitions. For the second quarter and first six months of 2019, acquisition and integration related expenses resulted from the acquisition of Northern States, Northern Oak, and Bridgeview.Bridgeview acquisitions.
Delivering Excellence implementation costs for all periods presented resulted from certain actions initiated by the Company in connection with its Delivering Excellence initiative and include property valuation adjustments on locations identified for closure, employee severance, and general restructuring and advisory services.
Income Taxes
Our provision for income taxes includes both federal and state income tax expense. An analysis of the provision for income taxes for the quarters and six months ended June 30, 20192020 and 20182019 is detailed in the following table.
Table 6
Income Tax Expense Analysis
(Dollar amounts in thousands)
 Quarters Ended 
 June 30,		 Six Months Ended 
 June 30,		 Quarters Ended 
 June 30,		Six Months Ended 
 June 30,
 2019 2018 2019 2018 2020201920202019
Income before income tax expense $63,205
 $39,320
 $124,581
 $82,637
Income before income tax expense$25,246  $63,205  $51,320  $124,581  
Income tax expense:        Income tax expense:
Federal income tax expense $11,932
 $7,623
 $22,998
 $14,769
Federal income tax expense$4,963  $11,932  $10,300  $22,998  
State income tax expense 4,259
 2,097
 8,511
 4,758
State income tax expense1,219  4,259  2,350  8,511  
Total income tax expense $16,191
 $9,720
 $31,509
 $19,527
Total income tax expense$6,182  $16,191  $12,650  $31,509  
Effective income tax rate 25.6% 24.7% 25.3% 23.6%Effective income tax rate24.5 %25.6 %24.6 %25.3 %
Federal income tax expense and the related effective income tax rate are influenced by the amount of tax-exempt income derived from investment securities and BOLI in relation to pre-tax income 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 increasedecrease in income tax expense and effective tax rate for the second quarter and six months ended June 30, 20192020 was driven primarily by higherlower levels of income subject to tax at statutory rates and an increase in non-deductible acquisition and integration related expenses.rates.
Our accounting policies regarding the recognition of income taxes in the Consolidated Statements of Financial Condition and Income are described in Notes 1 and 1516 to the Consolidated Financial Statements of our 20182019 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.income (loss).
We manage our investment portfolio to maximize the return on invested funds within acceptable risk guidelines, to meet pledging and liquidity requirements, and to adjust balance sheet interest rate sensitivity to mitigate the impact of changes in interest rates on net interest income.

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From time to time, we adjust the size and composition of our securities portfolio based on a number of factors, including expected loan growth, anticipated changes in collateralized public funds on account, the interest rate environment, and the related value of various segments of the securities markets. The following table provides a valuation summary of our investment portfolio.
Table 7
Investment Portfolio
(Dollar amounts in thousands)
 As of June 30, 2020As of December 31, 2019
 Amortized
Cost		Net
Unrealized
Gains
(Losses)		Fair Value% of TotalAmortized
Cost		Net
Unrealized
Gains
(Losses)		Fair Value% of Total
Securities Available-for-Sale       
U.S. treasury securities$20,992  $207  $21,199  0.6  $33,939  $136  $34,075  1.2  
U.S. agency securities640,253  2,794  643,047  18.7  249,502  (1,078) 248,424  8.6  
Collateralized mortgage
obligations ("CMOs")		1,624,609  47,520  1,672,129  48.7  1,547,805  9,866  1,557,671  54.2  
Other mortgage-backed
securities ("MBSs")		695,218  19,922  715,140  20.8  678,804  5,880  684,684  23.8  
Municipal securities229,414  10,389  239,803  7.0  228,632  5,799  234,431  8.2  
Corporate debt securities143,639  905  144,544  4.2  112,797  1,304  114,101  4.0  
Total securities
available-for-sale		$3,354,125  $81,737  $3,435,862  100.0  $2,851,479  $21,907  $2,873,386  100.0  
Securities Held-to-Maturity    
Municipal securities(1)
$19,628  $48  $19,676  $21,997  $(763) $21,234  
Equity Securities$43,954  $42,136  
  As of June 30, 2019 As of December 31, 2018
  
Amortized
Cost
 
Net
Unrealized
Gains
(Losses)
 Fair Value % of Total 
Amortized
Cost
 
Net
Unrealized
Gains
(Losses)
 Fair Value % of Total
Securities Available-for-Sale              
U.S. treasury securities $42,946
 $141
 $43,087
 1.5 $37,925
 $(158) $37,767
 1.7
U.S. agency securities 187,085
 153
 187,238
 6.7 144,125
 (1,562) 142,563
 6.3
Collateralized mortgage
  obligations ("CMOs")
 1,533,298
 16,430
 1,549,728
 55.5 1,336,531
 (21,322) 1,315,209
 57.9
Other mortgage-backed
  securities ("MBSs")
 666,454
 3,953
 670,407
 24.0 477,665
 (10,731) 466,934
 20.5
Municipal securities 234,028
 4,314
 238,342
 8.5 229,600
 (2,413) 227,187
 10.0
Corporate debt securities 104,427
 87
 104,514
 3.7 86,074
 (3,725) 82,349
 3.6
Total securities
  available-for-sale
 $2,768,238
 $25,078
 $2,793,316
 100.0 $2,311,920
 $(39,911) $2,272,009
 100.0
Securities Held-to-Maturity              
Municipal securities $23,277
 $(872) $22,405
 
 $10,176
 $(305) $9,871
  
Equity Securities     $40,690
       $30,806
  
(1)Net of $220,000 of allowance for securities held-to-maturity as of June 30, 2020 which was established upon adoption of CECL on January 1, 2020.
Portfolio Composition
As of June 30, 2019,2020, our securities available-for-sale portfolio totaled $2.8$3.4 billion, increasing $521.3$562.5 million, or 22.9%19.6%, from December 31, 2018.2019. The increase from December 31, 20182019 was driven primarily by purchases, consisting primarily of CMOs, MBSs,U.S. agency securities and corporate debt securities,CMOs, as well as $263.7$136.9 million of securities acquired in the BridgeviewPark Bank transaction and a change in unrealized gains (losses) due to lower market interest rates, which were partially offset by maturities, calls, and prepayments.
Investments in municipal securities consist of general obligations of local municipalities in multiple states. Our municipal securities portfolio has historically experienced very low default rates and provides a predictable cash flow.

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The following table presents the effective duration, average life, and yield to maturity for the Company's securities portfolio by category as of June 30, 20192020 and December 31, 2018.2019.
Table 8
Securities Effective Duration Analysis
 As of June 30, 2020As of December 31, 2019
EffectiveAverageYield toEffectiveAverageYield to
 
Duration(1)
Life(2)
Maturity(3)
Duration(1)
Life(2)
Maturity(3)
Securities Available-for-Sale      
U.S. treasury securities0.48 %0.50  2.14 %0.66 %0.69  2.27 %
U.S. agency securities3.51 %3.14  2.53 %3.07 %5.50  2.56 %
CMOs2.39 %3.53  2.38 %2.98 %4.59  2.55 %
MBSs2.89 %3.53  2.46 %4.05 %4.94  2.79 %
Municipal securities4.32 %4.48  2.85 %4.35 %4.58  2.77 %
Corporate debt securities2.01 %5.24  2.66 %1.39 %5.63  3.15 %
Total securities available-for-sale2.81 %3.57  2.47 %3.26 %4.75  2.65 %
Securities Held-to-Maturity      
Municipal securities3.47 %4.09  4.31 %3.24 %4.09  4.52 %
(1)The effective duration represents the estimated percentage change in the fair value of the securities portfolio given a 100 basis point increase or decrease in interest rates. This measure is used to evaluate the portfolio's price volatility at a single point in time and is not intended to be a precise predictor of future fair values since those values will be influenced by a number of factors.
(2)Average life is presented in years and represents the weighted-average time to receive half of all expected future cash flows using the dollar amount of principal paydowns, including estimated principal prepayments, as the weighting factor.
 As of June 30, 2019 As of December 31, 2018
 Effective Average Yield to Effective Average Yield to
 
Duration(1)
 
Life(2)
 
Maturity(3)
 
Duration(1)
 
Life(2)
 
Maturity(3)
Securities Available-for-Sale           
U.S. treasury securities0.84% 0.87
 2.40% 1.08% 1.12
 2.23%
U.S. agency securities2.13% 2.97
 2.48% 1.56% 2.97
 2.29%
CMOs2.64% 4.12
 2.82% 3.53% 4.71
 2.72%
MBSs3.67% 4.99
 2.90% 4.26% 5.63
 2.76%
Municipal securities4.37% 4.40
 2.70% 4.81% 5.05
 2.65%
Corporate debt securities1.02% 5.81
 3.60% 0.00% 6.93
 3.53%
Total securities available-for-sale2.91% 4.29
 2.83% 3.51% 4.85
 2.72%
Securities Held-to-Maturity           
Municipal securities3.41% 4.34
 4.81% 1.27% 1.35
 3.54%
(1)(3)Yields on municipal securities are reflected on a tax-equivalent basis, assuming the applicable federal income tax rate for each period presented.
The effective duration represents the estimated percentage change in the fair value of the securities portfolio given a 100 basis point increase or decrease in interest rates. This measure is used to evaluate the portfolio's price volatility at a single point in time and is not intended to be a precise predictor of future fair values since those values will be influenced by a number of factors.
(2)
Average life is presented in years and represents the weighted-average time to receive half of all expected future cash flows using the dollar amount of principal paydowns, including estimated principal prepayments, as the weighting factor.
(3)
Yields on municipal securities are reflected on a tax-equivalent basis, assuming the applicable federal income tax rate for each period presented.
Effective Duration
The average life and effective duration of our securities available-for-sale portfolio was 4.293.57 years and 2.91%2.81%, respectively, as of June 30, 2019,2020, down from 4.854.75 years and 3.51%3.26% as of December 31, 2018.2019. The decrease resulted primarily from higher expected future prepayments of CMOs and MBSs due to lower market interest rates.
Realized Gains and Losses
There were no net securities losses for the second quarter of 2020 and net securities losses of $1.0 million for the first six months of 2020, as a result of repositioning of the securities portfolio due to market conditions. There were no securities gains (losses) or impairment charges recognized during the second quarter and first six months of 2019 and 2018.2019.
Unrealized Gains and Losses
Unrealized gains and losses on securities available-for-sale represent the difference between the aggregate cost and fair value of the portfolio. These amounts are presented in the Consolidated Statements of Comprehensive Income and reported as a separate component of stockholders' equity in accumulated other comprehensive loss,income (loss), net of deferred income taxes. This balance sheet component will fluctuate as interest rates and conditions change and affect the aggregate fair value of the portfolio. Lower market interest rates drove the change to $25.1$81.7 million of unrealized gains as of June 30, 20192020 compared to $39.9$21.9 million of unrealized lossesgains as of December 31, 2018.2019.
LOAN PORTFOLIO AND CREDIT QUALITY
Portfolio Composition
Our loan portfolio is comprised of both corporate and consumer loans, with corporate loans representing 78.1%76.3% of total loans as of June 30, 2019.2020. Consistent with our emphasis on relationship banking, the majority of our corporate loans are made to our core, multi-relationship customers. The customers usually maintain deposit relationships and utilize certain of our other banking services, such as treasury or wealth management services.
To maximize loan income within an acceptable level of risk, we have certain lending policies and procedures that management reviews on a regular basis. In addition, management receives periodic reporting related to loan production, loan quality, credit

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concentrations, loan delinquencies, and non-performing and corporate performing potential problem loans to monitor and mitigate potential and current risks in the portfolio.
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Table 9
Loan Portfolio
(Dollar amounts in thousands)
As of June 30, 2020% of
Total Loans		As of
December 31, 2019		% of
Total Loans		% Change
Commercial and industrial$4,789,556  32.1 ��$4,481,525  34.9  6.9  
Agricultural381,124  2.5  405,616  3.2  (6.0) 
Commercial real estate:     
Office, retail, and industrial2,020,318  13.5  1,848,718  14.4  9.3  
Multi-family874,861  5.8  856,553  6.7  2.1  
Construction687,063  4.6  593,093  4.6  15.8  
Other commercial real estate1,475,937  9.9  1,383,708  10.8  6.7  
Total commercial real estate5,058,179  33.8  4,682,072  36.5  8.0  
Total corporate loans, excluding PPP loans10,228,859  68.4  9,569,213  74.6  6.9  
PPP loans1,179,403  7.9  —  —  N/M
Total corporate loans11,408,262  76.3  9,569,213  74.5  16.6  
Home equity892,867  6.0  851,454  6.6  4.9  
1-4 family mortgages2,175,322  14.6  1,927,078  15.0  12.9  
Installment457,207  3.1  492,585  3.8  (7.2) 
Total consumer loans3,525,396  23.7  3,271,117  25.4  7.8  
Total loans$14,933,658  100.0  $12,840,330  100.0  16.3  
  As of  
 June 30, 2019		     % Change
  Legacy 
Acquired(1)
 Total 
% of
Total Loans
 
As of
December 31, 2018
 % of
Total Loans		 Legacy Total
Commercial and
  industrial
 $4,328,347
 $196,054
 $4,524,401
 36.1 $4,120,293
 36.0 5.0
 9.8
Agricultural 429,983
 606
 430,589
 3.4 430,928
 3.8 (0.2) (0.1)
Commercial real estate: 

           
  
Office, retail, and
  industrial
 1,750,410
 186,167
 1,936,577
 15.5 1,820,917
 15.9 (3.9) 6.4
Multi-family 753,935
 33,220
 787,155
 6.3 764,185
 6.7 (1.3) 3.0
Construction 635,363
 19,244
 654,607
 5.2 649,337
 5.6 (2.2) 0.8
Other commercial real
  estate
 1,246,751
 200,922
 1,447,673
 11.6 1,361,810
 11.9 (8.4) 6.3
Total commercial real
  estate
 4,386,459
 439,553
 4,826,012
 38.6 4,596,249
 40.1 (4.6) 5.0
Total corporate loans 9,144,789
 636,213
 9,781,002
 78.1 9,147,470
 79.9 —
 6.9
Home equity 863,441
 11,245
 874,686
 7.0 851,607
 7.4 1.4
 2.7
1-4 family mortgages 1,346,676
 45,138
 1,391,814
 11.1 1,017,181
 8.9 32.4
 36.8
Installment 472,068
 34
 472,102
 3.8 430,525
 3.8 9.6
 9.7
Total consumer loans 2,682,185
 56,417
 2,738,602
 21.9 2,299,313
 20.1 16.7
 19.1
Total loans $11,826,974
 $692,630
 $12,519,604
 100.0 $11,446,783
 100.0 3.3
 9.4
N/M – Not meaningful.
(1) Amount represents loans acquired inLoan growth was positively impacted by the Bridgeview transaction, which was completedPPP loan program in the second quarter of 2019.
Loan growth2020, which added $1.2 billion as of June 30, 2020, as well as loans acquired in all categories was positively impacted by the BridgeviewPark Bank acquisition in the secondfirst quarter of 2019,2020, which totaled $692.6$726.2 million as of June 30, 2019.2020. Excluding these loans, total loans grew 6.7%2.9% annualized from December 31, 2018.2019. In addition, total corporate loans benefited from growth in commercial and industrial loans as a result of both new production and existing line draws, primarily within our sector-based lending and middle market business units, contributed to the rise in totalbusinesses. Overall, corporate loans. Commercial real estateloans, excluding PPP loans, were also impacted by lower production and line usage and higher paydowns due to current economic conditions as a result of the decision of certain customers to opportunistically sell their commercial business or investment real estate properties, as well as refinancing with non-bank lenders and real estate investors, which more than offset originations.ongoing pandemic. Growth in consumer loans resulted primarily from strong production and purchases of 1-4 family mortgages and shorter-duration home equity loans and organic growth.1-4 family mortgages, which more than offset prepayments.
Commercial, Industrial, and Agricultural Loans
Commercial, industrial, and agricultural loans represent 39.5%represented 34.7% of total loans, and totaled $5.0$5.2 billion at June 30, 2019,2020, an increase of $403.8$283.5 million, or 8.9%5.8%, from December 31, 2018.2019. Our commercial and industrial loans are a diverse group of loans generally located in the Chicago metropolitan area with purposes that include supporting seasonal working capital needs, accounts receivable financing, inventory and equipment financing, and select sector-based lending, such as healthcare, asset-based lending, structured finance, and syndications. Most commercial and industrial loans are secured by the assets being financed or other business assets, such as accounts receivable or inventory. The underlying collateral securing commercial and industrial loans may fluctuate in value due to the success of the business or economic conditions. For loans secured by accounts receivable, the availability of funds for repayment and economic conditions may impact the cash flow of the borrower. Accordingly, the underwriting for these loans is based primarily on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower and may incorporate a personal guarantee.
Agricultural loans are generally provided to meet seasonal production, equipment, and farm real estate borrowing needs of individual and corporate crop and livestock producers. Seasonal crop production loans are repaid by the liquidation of the financed crop that is typically covered by crop insurance. Equipment and real estate term loans are repaid through cash flows of the farming operation. Risks uniquely inherent in agricultural loans relate to weather conditions, agricultural product pricing, and loss of crops

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or livestock due to disease or other factors. Therefore, as part of the underwriting process, the Company examines projected future cash flows, financial statement stability, and the value of the underlying collateral.
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Commercial Real Estate Loans
Commercial real estate loans are subject to underwriting standards and processes similar to commercial and industrial loans. The repayment of commercial real estate loans depends on the successful operation of the property securing the loan or the business conducted on the property securing the loan. This category of loans may be more adversely affected by conditions in real estate markets. In addition, many commercial real estate loans do not fully amortize over the term of the loan but have balloon payments due at maturity. The borrower's ability to make a balloon payment may depend on the availability of long-term financing or their ability to complete a timely sale of the underlying property. Management monitors and evaluates commercial real estate loans based on cash flow, collateral, geography, and risk rating criteria.
Construction loans are generally made based on estimates of costs and values associated with the completed projects and are underwritten utilizing feasibility studies, independent appraisal reviews, sensitivity analyses of absorption and lease rates, and financial analyses of the developers and property owners. Sources of repayment may be permanent long-term financing, sales of developed property, or an interim loan commitment until permanent financing is obtained. Generally, construction loans have a higher risk profile than other real estate loans since repayment is impacted by real estate values, interest rate changes, governmental regulation of real property, demand and supply of alternative real estate, the availability of long-term financing, and changes in general economic conditions.
The following table presents commercial real estate loan detail as of June 30, 20192020 and December 31, 2018.2019.
Table 10
Commercial Real Estate Loans
(Dollar amounts in thousands)
 As of  
 June 30, 2019		 % of
Total		 As of
December 31, 2018		 % of
Total		As of  
 June 30, 2020		% of
Total		As of  
 December 31, 2019		% of
Total
Office, retail, and industrial:     Office, retail, and industrial:  
Office $723,187
 15.0 $708,146
 15.4Office$710,177  14.0  $643,575  13.7  
Retail 578,527
 12.0 506,099
 11.0Retail620,199  12.3  607,712  13.0  
Industrial 634,863
 13.2 606,672
 13.2Industrial689,942  13.6  597,431  12.8  
Total office, retail, and industrial 1,936,577
 40.2 1,820,917
 39.6Total office, retail, and industrial2,020,318  39.9  1,848,718  39.5  
Multi-family 787,155
 16.3 764,185
 16.7Multi-family874,861  17.3  856,553  18.3  
Construction 654,607
 13.6 649,337
 14.1Construction687,063  13.6  593,093  12.7  
Other commercial real estate:     Other commercial real estate:  
Multi-use propertiesMulti-use properties344,377  6.8  300,488  6.4  
Rental properties 299,987
 6.2 235,851
 5.1Rental properties316,398  6.3  277,350  5.9  
Multi-use properties 281,830
 5.8 309,199
 6.7
Warehouses and storage 192,370
 4.0 197,185
 4.3Warehouses and storage193,453  3.8  166,750  3.6  
Hotels 132,153
 2.7 128,199
 2.8Hotels110,891  2.2  127,213  2.7  
Service stations and truck stops 118,145
 2.5 100,293
 2.2Service stations and truck stops110,111  2.2  114,205  2.4  
Restaurants 111,200
 2.3 115,667
 2.5Restaurants107,283  2.1  102,341  2.2  
Recreational 73,731
 1.5 70,490
 1.5Recreational96,398  1.9  89,246  1.9  
Other 238,257
 4.9 204,926
 4.5Other197,026  3.9  206,115  4.4  
Total other commercial real estate 1,447,673
 29.9 1,361,810
 29.6Total other commercial real estate1,475,937  29.2  1,383,708  29.5  
Total commercial real estate $4,826,012
 100.0 $4,596,249
 100.0Total commercial real estate$5,058,179  100.0  $4,682,072  100.0  
Commercial real estate loans represent 38.6%33.8% of total loans, and totaled $4.8$5.1 billion at June 30, 2019, decreasing $229.82020, increasing $376.1 million, or 5.0%8.0%, from December 31, 2018.2019.
The mix of properties securing the loans in our commercial real estate portfolio is balanced between owner-occupied and investor categories and is diverse in terms of type and geographic location, generally within the Company's markets. Approximately 40%47% of the commercial real estate portfolio, excluding multi-family and construction loans, is owner-occupied as of June 30, 2019.2020. Using outstanding loan balances, non-owner-occupied commercial real estate loans to total capital was 200%179% and construction loans to total capital was 35%31% as of June 30, 2019.2020. Non-owner-occupied (investor) commercial real estate is calculated in accordance

54



with federal banking agency guidelines and includes construction, multi-family, non-farm non-residential property, and commercial real estate loans that are not secured by real estate collateral.
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As a result of the pandemic, the Company identified certain elevated risk segments in the corporate loan portfolio including franchises, recreation and entertainment, restaurants, hotels, and commercial retailers. As of June 30, 2020, these elevated risk segments approximate 5% of our granular and diverse total loan portfolio.
Consumer Loans
Consumer loans represent 21.9%represented 23.7% of total loans, and totaled $2.7$3.5 billion at June 30, 2019,2020, an increase of $439.3$254.3 million, or 19.1%7.8%, from December 31, 2018.2019. Consumer loans are centrally underwritten using a credit scoring model developed by the Fair Isaac Corporation ("FICO"), which employs a risk-based system to determine the probability that a borrower may default. Underwriting standards for home equity loans are heavily influenced by statutory requirements, which include loan-to-value and affordability ratios, risk-based pricing strategies, and documentation requirements. The home equity category consists mainly of revolving lines of credit secured by junior liens on owner-occupied real estate. Loan-to-value ratios on home equity loans and 1-4 family mortgages are based on the current appraised value of the collateral. Repayment for these loans is dependent on the borrower's continued financial stability and is more likely to be impacted by adverse personal circumstances.

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Non-performing Assets and Corporate Performing Potential Problem Loans
The following table presents our loan portfolio by performing and non-performing status. A discussionthe pandemic, the Company identified unsecured installment loans, which was less than 2% of our accounting policies for non-accrual loans, TDRs, and loans 90 days or more past due can be found in Note 1 of "Notes to the Condensed Consolidated Financial Statements" in Part 1, Item 1 of this Form 10-Q.
Table 11
Loan Portfolio by Performing/Non-performing Status
(Dollar amounts in thousands)
 Accruing    
 
PCI(1)
 Current 
30-89 Days
Past Due
 
90 Days
Past Due
 Non-accrual 
Total
Loans
As of June 30, 2019           
Commercial and industrial$49,196
 $4,441,816
 $12,111
 $1,469
 $19,809
 $4,524,401
Agricultural3,428
 419,159
 1,290
 —
 6,712
 430,589
Commercial real estate:  
        
Office, retail, and industrial13,682
 1,902,581
 2,287
 152
 17,875
 1,936,577
Multi-family6,346
 775,465
 22
 —
 5,322
 787,155
Construction9,249
 642,094
 3,112
 —
 152
 654,607
Other commercial real estate68,512
 1,367,806
 7,275
 98
 3,982
 1,447,673
Total commercial real estate97,789
 4,687,946
 12,696
 250
 27,331
 4,826,012
Total corporate loans150,413
 9,548,921
 26,097
 1,719
 53,852
 9,781,002
Home equity2,713
 861,986
 4,135
 13
 5,839
 874,686
1-4 family mortgages19,943
 1,364,169
 3,916
 —
 3,786
 1,391,814
Installment913
 469,994
 312
 883
 —
 472,102
Total consumer loans23,569
 2,696,149
 8,363
 896
 9,625
 2,738,602
Total loans$173,982
 $12,245,070
 $34,460
 $2,615
 $63,477
 $12,519,604
As of December 31, 2018           
Commercial and industrial$1,175
 $4,076,842
 $8,347
 $422
 $33,507
 $4,120,293
Agricultural3,282
 425,041
 940
 101
 1,564
 430,928
Commercial real estate:  
        
Office, retail, and industrial16,556
 1,785,561
 8,209
 4,081
 6,510
 1,820,917
Multi-family13,663
 745,739
 1,487
 189
 3,107
 764,185
Construction4,838
 640,936
 3,419
 —
 144
 649,337
Other commercial real estate54,763
 1,297,191
 4,805
 2,197
 2,854
 1,361,810
Total commercial real estate89,820
 4,469,427
 17,920
 6,467
 12,615
 4,596,249
Total corporate loans94,277
 8,971,310
 27,207
 6,990
 47,686
 9,147,470
Home equity1,916
 839,206
 4,988
 104
 5,393
 851,607
1-4 family mortgages16,655
 991,842
 3,681
 1,147
 3,856
 1,017,181
Installment962
 427,874
 1,648
 41
 —
 430,525
Total consumer loans19,533
 2,258,922
 10,317
 1,292
 9,249
 2,299,313
Total loans$113,810
 $11,230,232
 $37,524
 $8,282
 $56,935
 $11,446,783
(1)
PCI loans with an accretable yield are considered current.





56



The following table provides a comparison of our non-performing assets and past due loans to prior periods.
Table 12
Non-Performing Assets and Past Due Loans
(Dollar amounts in thousands)
 As of
 June 30,
2019		 March 31,
2019		 December 31,
2018		 September 30,
2018		 June 30,
2018
Non-accrual loans$63,477
 $70,205
 $56,935
 $64,766
 $53,475
90 days or more past due loans, still
accruing interest(1)
2,615
 8,446
 8,282
 2,949
 7,954
Total non-performing loans66,092
 78,651
 65,217
 67,715
 61,429
Accruing TDRs1,441
 1,844
 1,866
 1,741
 1,760
Foreclosed Assets(2)
28,488
 10,818
 12,821
 12,244
 12,892
Total non-performing assets$96,021
 $91,313
 $79,904
 $81,700
 $76,081
30-89 days past due loans(1)
$34,460
 $45,764
 $37,524
 $46,257
 $39,171
Non-accrual loans to total loans0.51% 0.61% 0.50% 0.59% 0.49%
Non-performing loans to total loans0.53% 0.68% 0.57% 0.61% 0.56%
Non-performing assets to total loans plus
  foreclosed assets
0.77% 0.79% 0.70% 0.74% 0.70%
(1)
PCI loans with an accretable yield are considered current and are not included in past due loan totals.
(2)
Foreclosed assets consists of OREO and other foreclosed assets acquired in partial or total satisfaction of defaulted loans. Other foreclosed assets are included in other assets in the Consolidated Statements of Financial Condition.
Total non-performing assets represented 0.77% of total loans and foreclosed assets at June 30, 2019, compared to 0.70% at both December 31, 2018 and June 30, 2018, reflective of normal fluctuations that can occur on a quarterly basis. The increase in foreclosed assets from December 31, 2018 was driven primarily by the transfer of one corporate loan relationship to foreclosed assets during the second quarter of 2019, for which the Company has remediation plans in place. In addition, included in foreclosed assetsportfolio as of June 30, 2019 was $6.2 million of OREO acquired2020, as an elevated risk segment in the Bridgeview transaction.

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TDRs
Loan modifications may be performed at the request of an individual borrower and may include reductions in interest rates, changes in payments, and extensions of maturity dates. We occasionally restructure loans at other than market rates or terms to enable the borrower to work through financial difficulties for a period of time, and these restructured loans remain classified as TDRs for the remaining term of these loans.
Table 13
TDRs by Type
(Dollar amounts in thousands)
 As of
 June 30, 2019 December 31, 2018 June 30, 2018
 
Number
of Loans
 Amount 
Number
of Loans
 Amount 
Number
of Loans
 Amount
Commercial and industrial5
 $7,164
 6
 $6,240
 6
 $7,100
Commercial real estate:           
Office, retail, and industrial1
 383
 —
 —
 2
 501
Multi-family1
 167
 2
 557
 2
 566
Other commercial real estate1
 176
 1
 181
 1
 187
Total commercial real estate3
 726
 3
 738
 5
 1,254
Total corporate loans8
 7,890
 9
 6,978
 11
 8,354
Home equity9
 366
 11
 440
 13
 554
1-4 family mortgages11
 1,026
 11
 1,060
 11
 1,090
Total consumer loans20
 1,392
 22
 1,500
 24
 1,644
Total TDRs28
 $9,282
 31
 $8,478
 35
 $9,998
Accruing TDRs14
 $1,441
 15
 $1,866
 13
 $1,760
Non-accrual TDRs14
 7,841
 16
 6,612
 22
 8,238
Total TDRs28
 $9,282
 31

$8,478
 35
 $9,998
Year-to-date charge-offs on TDRs  $628
   $3,925
   $3,672
Specific reserves related to TDRs  670
   —
   625

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Corporate Performing Potential Problem Loans
Corporate performing potential problem loans consist of special mention loans and substandard loans, excluding accruing TDRs.consumer loan portfolio. These loans are performing in accordance with their contractual terms, but wehigh credit quality, geographically dispersed, and have concerns about the abilityaverage loan sizes of the borrower to continue to comply with loan terms due to the borrower's operating or financial difficulties.less than $9,000, which reduces our risk exposure.
Table 14
Corporate Performing Potential Problem Loans
(Dollar amounts in thousands)
 As of June 30, 2019 As of December 31, 2018
 
Special
Mention(1)
 
Substandard(2)
 
Total(3)
 
Special
Mention(1)
 
Substandard(2)
 
Total(3)
Commercial and industrial$74,221
 $103,972
 $178,193
 $74,878
 $59,597
 $134,475
Agricultural23,834
 16,639
 40,473
 10,070
 11,752
 21,822
Commercial real estate93,119
 97,953
 191,072
 109,232
 74,886
 184,118
Total corporate performing
  potential problem loans(4)
$191,174
 $218,564
 $409,738
 $194,180
 $146,235
 $340,415
Corporate performing potential
  problem loans to corporate
  loans
1.95% 2.23% 4.19% 2.12% 1.60% 3.72%
Corporate PCI performing
  potential problem loans
  included in the totals above
$3,069
 $35,774
 $38,843
 $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 $236,000 as of June 30, 2019 and $630,000 as of December 31, 2018.
(4)
Includes corporate PCI performing potential problem loans.
Corporate performing potential problem loans to corporate loans was 4.19% at June 30, 2019, increasing from 3.72% at December 31, 2018. The increase resulted primarily from higher levels of commercial and industrial and agricultural loans classified as special mention and substandard. Management has specific monitoring and remediation plans associated with these loans.
Foreclosed Assets
Foreclosed assets consists of OREO and other foreclosed assets acquired in partial or total satisfaction of defaulted loans. Other foreclosed assets as of June 30, 2019 reflects the transfer of one corporate loan relationship for which the Company has remediation plans in place.
Table 15
Foreclosed Assets by Type
(Dollar amounts in thousands)
  As of
  June 30, 2019 December 31, 2018 June 30, 2018
Single-family homes $3,671
 $3,337
 $633
Land parcels:      
Raw land —
 —
 148
Commercial lots 6,086
 2,310
 5,006
Single-family lots 2,190
 1,962
 1,962
Total land parcels 8,276
 4,272
 7,116
Multi-family units 139
 —
 225
Commercial properties 3,227
 5,212
 4,918
Total OREO 15,313
 12,821
 12,892
Other foreclosed assets 13,175
 —
 —
Total $28,488
 $12,821
 $12,892
(1)
Other foreclosed assets are included in other assets in the Consolidated Statements of Financial Condition.

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A rollforward of foreclosed assets for the quarters and six months ended June 30, 2019 and 2018 is presented in the following table.
Table 16
Foreclosed Assets Rollforward
(Dollar amounts in thousands)
  Quarters Ended June 30, Six Months Ended June 30,
  2019 2018 2019 2018
Beginning balance $10,818
 $17,472
 $12,821
 $20,851
Transfers from loans 13,497
 235
 13,497
 1,172
Acquisitions 6,237
 —
 6,237
 —
Proceeds from sales (2,441) (4,762) (5,236) (8,638)
Gains on sales of foreclosed assets 246
 35
 353
 15
Valuation adjustments 131
 (88) 816
 (508)
Ending balance $28,488
 $12,892
 $28,488
 $12,892
Allowance for Credit Losses
Methodology for the Allowance for Credit Losses
On January 1, 2020, the Company adopted CECL, which requires the Company to present financial assets measured at amortized cost at the net amount expected to be collected considering an entity's current estimate of all expected credit losses. Prior to the adoption of CECL, the allowance for credit losses was estimated using an incurred loss model based on historical loss experience. The adoption of CECL impacted both the level of allowance for credit loss reserves as well as other asset quality metrics due to the change in accounting for acquired PCD loans. As a result, certain metrics are presented excluding PCD loans to provide comparability to prior periods.
The allowance for credit losses is comprised of the allowance for loan losses and the reserveallowance for unfunded commitments and is maintained by management at a level believed adequate to absorb estimatedcurrent expected credit losses inherent in the existing loan portfolio. DeterminationThe determination of the allowance for credit losses is inherently subjective since it requires significant estimates and management judgment, including the amounts and timing of expected future cash flows on impairednon-accrual loans, estimated losses on pools of homogeneous loans,actual loss experience, consideration of current national, regional, and local economic trends and conditions, reasonable and supportable forecasts about the future, changes in interest rates and property values, various internal and external qualitative factors, and other factors.
Acquired loans are recorded at fair value, which incorporates credit risk, at the date of acquisition. No allowance for credit losses is recorded on the acquisition date for such loans. As the acquisition adjustment is accreted into income over future periods, an allowance for credit losses is established as necessary to reflect credit deterioration. In addition, certain acquired loans that have renewed subsequent to their respective acquisition dates are no longer classified as acquired loans. Instead, they are included with our loan population that is allocated an allowance in accordance with our allowance for loan losses methodology.
While management utilizes its best judgment and information available, the ultimate adequacy of the allowance for credit losses depends on a variety of factors beyond the Company's control, including the performance of its loan portfolio, the economy, changes in interest rates and property values, and the interpretation of loan risk ratings by regulatory authorities. Management believes that the allowance for credit losses is an appropriate estimate of current expected credit losses inherent in the existing loan portfolio as of June 30, 2019.2020.
The accounting policy for the allowance for credit losses is discussed in Note 1 of "Notes to the Condensed Consolidated Financial Statements" in Part I, Item 1 of this Form 10-Q.

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An allowance for credit losses is established on loans originated by the Bank, acquired loans, and covered loans. Additional discussion regarding acquired and covered loans can be found in Notes 1 and 6 of "Notes to the Condensed Consolidated Financial Statements" in Part I, Item 1 of this Form 10-Q. The following table provides additional details related to acquired loans, the allowance for credit losses related to acquired loans, and the remaining acquisition adjustment associated with acquired loans as of June 30, 2019 and December 31, 2018.
Table 17
Allowance for Credit Losses and Acquisition Adjustment
(Dollar amounts in thousands)

  Loans, Excluding Acquired Loans 
Acquired Loans(1)
 Total
Six months ended June 30, 2019      
Beginning balance $102,222
 $1,197
 $103,419
Net charge-offs (17,572) (853) (18,425)
Provision for loan losses and other expense 21,752
 183
 21,935
Ending balance $106,402
 $527
 $106,929
As of June 30, 2019      
Total loans $10,806,858
 $1,712,746
 $12,519,604
Remaining acquisition adjustment(2)
 N/A
 102,823
 102,823
Allowance for credit losses to total loans(3)
 0.98% 0.03% 0.85%
Remaining acquisition adjustment to acquired loans N/A
 6.00% N/A
As of December 31, 2018      
Total loans $10,114,113
 $1,332,670
 $11,446,783
Remaining acquisition adjustment(2)
 N/A
 76,496
 76,496
Allowance for credit losses to total loans(3)
 1.01% 0.09% 0.90%
Remaining acquisition adjustment to acquired loans N/A
 5.74% N/A
N/A – Not applicable.
(1)
These amounts and ratios relate to the loans acquired in completed acquisitions.
(2)
The remaining acquisition adjustment consists of $69.2 million and $33.6 million relating to PCI and non-purchased credit impaired ("Non-PCI") loans, respectively, as of June 30, 2019, and $45.4 million and $31.1 million relating to PCI and Non-PCI loans, respectively, as of December 31, 2018.
(3)
The allowance for credit losses to total loans, excluding acquired loans is a non-GAAP financial measure. For a discussion of non-GAAP financial measures, see the section of this Item 2 titled "Non-GAAP Financial Information and Reconciliations."
Excluding acquired loans, the allowance for credit losses to total loans was 0.98% as of June 30, 2019. The acquisition adjustment increased $26.3 million during the first six months of 2019, driven primarily by the loans acquired in the Bridgeview transaction, partly offset by acquired loan accretion, and resulting in a remaining acquisition adjustment as a percent of acquired loans of 6.00%. Acquired loans that are renewed are no longer classified as acquired loans. These loans totaled $490.0 million and $458.0 million as of June 30, 2019 and December 31, 2018, respectively, and are included in loans, excluding acquired loans, and allocated an allowance in accordance with our allowance for loan losses methodology. In addition, there is an allowance for credit losses of $527,000 on acquired loans as of June 30, 2019.

61



Table 1811
Allowance for Credit Losses and
Summary of Credit Loss Experience
(Dollar amounts in thousands)
Quarters Ended
June 30,
2020		March 31, 
 2020		December 31, 2019September 30,
2019		June 30,
2019
Change in allowance for credit losses    
Beginning balance$226,701  $109,222  $110,228  $106,929  $104,779  
Adjustment to apply recent accounting
  pronouncements(1)
—  75,757  —  —  —  
Allowance established for acquired PCD loans1,250  14,304  —  —  —  
Loan charge-offs:
Commercial, industrial, and agricultural5,673  7,066  7,865  7,176  6,516  
Office, retail, and industrial3,092  338  274  293  1,605  
Multi-family9  10  —  —  —  
Construction798  1,808  4  —  —  
Other commercial real estate31  308  77  184  329  
Consumer4,631  4,400  4,515  3,619  2,974  
Total loan charge-offs14,234  13,930  12,735  11,272  11,424  
Recoveries of loan charge-offs:  
Commercial, industrial, and agricultural820  1,159  1,051  1,205  1,258  
Office, retail, and industrial6  9  18  74  151  
Multi-family—  5  439  38  —  
Construction—  —  1  2  10  
Other commercial real estate12  144  64  227  45  
Consumer473  499  562  527  619  
Total recoveries of loan charge-offs1,311  1,816  2,135  2,073  2,083  
Net loan charge-offs12,923  12,114  10,600  9,199  9,341  
Provision for loan losses32,649  39,532  9,594  12,498  11,491  
Ending balance$247,677  $226,701  $109,222  $110,228  $106,929  
Total net loan charge-offs, excluding
  PCD loans(2)
$9,090  $10,394  $10,600  $9,199  $9,341  
Allowance for credit losses
Allowance for loan losses$240,052  $219,948  $108,022  $109,028  $105,729  
Allowance for unfunded commitments7,625  6,753  1,200  1,200  1,200  
Total allowance for credit losses$247,677  $226,701  $109,222  $110,228  $106,929  
Allowance for credit losses to loans1.66 %1.62 %0.85 %0.86 %0.85 %
Allowance for credit losses to loans, excluding
  PPP loans(3)
1.80 %1.62 %0.85 %0.86 %0.85 %
Allowance for credit losses to
non-accrual loans		177.98 %154.64 %132.76 %141.88 %168.45 %
Net loan charge-offs to average loans,
  annualized		0.36 %0.37 %0.33 %0.29 %0.31 %
Net loan charge-offs to average loans, excluding
  PCD and PPP loans, annualized(2)(3)
0.27 %0.32 %0.33 %0.29 %0.31 %
 Quarters Ended
 June 30,
2019		 March 31,
2019		 December 31,
2018		 September 30,
2018		 June 30,
2018
Change in allowance for credit losses         
Beginning balance$104,779
 $103,419
 $100,925
 $97,691
 $95,854
Loan charge-offs:         
Commercial, industrial, and agricultural6,516
 6,451
 6,868
 6,277
 8,662
Office, retail, and industrial1,605
 628
 761
 759
 305
Multi-family—
 340
 —
 1
 4
Construction—
 6
 —
 1
 —
Other commercial real estate329
 210
 163
 177
 1
Consumer2,974
 3,142
 2,535
 2,049
 2,337
Total loan charge-offs11,424
 10,777
 10,327
 9,264
 11,309
Recoveries of loan charge-offs:         
Commercial, industrial, and agricultural1,258
 1,301
 1,239
 416
 753
Office, retail, and industrial151
 10
 48
 163
 26
Multi-family—
 1
 3
 —
 —
Construction10
 6
 99
 5
 8
Other commercial real estate45
 21
 980
 154
 359
Consumer619
 354
 441
 512
 386
Total recoveries of loan charge-offs2,083
 1,693
 2,810
 1,250
 1,532
Net loan charge-offs9,341
 9,084
 7,517
 8,014
 9,777
Provision for loan losses11,491
 10,444
 9,811
 11,248
 11,614
Increase in reserve for unfunded
  commitments (1)
—
 —
 200
 —
 —
Total provision for loan losses and other
  expense
11,491
 10,444
 10,011
 11,248
 11,614
Ending balance$106,929
 $104,779
 $103,419
 $100,925
 $97,691
Allowance for credit losses         
Allowance for loan losses$105,729
 $103,579
 $102,219
 $99,925
 $96,691
Reserve for unfunded commitments1,200
 1,200
 1,200
 1,000
 1,000
Total allowance for credit losses$106,929
 $104,779
 $103,419
 $100,925
 $97,691
Allowance for credit losses to loans(1)
0.85% 0.91% 0.90% 0.91% 0.90%
Allowance for credit losses to loans, excluding
  acquired loans(2)
0.98% 1.00% 1.01% 1.01% 1.00%
Allowance for credit losses to
  non-accrual loans
168.45% 149.25% 181.64% 155.83% 182.69%
Allowance for credit losses to
  non-performing loans
161.79% 133.22% 158.58% 149.04% 159.03%
Average loans$12,020,820
 $11,456,267
 $10,921,795
 $10,978,336
 $10,785,341
Net loan charge-offs to average loans,
  annualized
0.31% 0.32% 0.26% 0.29% 0.36%
(1)As a result of accounting guidance adopted in the first quarter of 2020, the increase in allowance for credit losses, net of tax, was recognized as a cumulative-effect adjustment to retained earnings as of January 1, 2020. For further discussion of this guidance, see Note 2, "Recent Accounting Pronouncements and Other Guidance."
(1)
(2)Prior to the adoption of CECL on January 1, 2020, the portion of PCI loans deemed to be uncollectible was recorded as a reduction of the credit-related acquisition adjustment, which was netted within loans. Subsequent to adoption, an allowance for credit losses on PCD loans, including those previously identified as PCI, is established as of the acquisition date and the PCD loans are no longer recorded net of a credit-related acquisition adjustment. PCD loans deemed to be uncollectible are recorded as a charge-off through the allowance for credit losses. This item is a non-GAAP financial measure. For a discussion of non-GAAP financial measures, see the section of this Item 2 titled "Non-GAAP Financial Information and Reconciliations."
(3)This ratio excludes PPP loans that are expected to be forgiven. As a result, no allowance for credit losses is associated with these loans. See the "Non-GAAP Financial Information" section presented later in this release for a discussion of this non-GAAP financial measure.
This ratio includes acquired loans that are recorded at fair value through an acquisition adjustment, which incorporates credit risk as of the acquisition date with no allowance for credit losses being established at that time. As the acquisition adjustment is accreted into income over future periods, an allowance for credit losses is established as necessary to reflect credit deterioration. See the Allowance for Credit Losses and Acquisition Adjustment table above for further discussion of the allowance for acquired loan losses and the related acquisition adjustment.
(2)
This item is a non-GAAP financial measure. For a discussion of non-GAAP financial measures, see the section of this Item 2 titled "Non-GAAP Financial Information and Reconciliations."

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Activity in the Allowance for Credit Losses
The allowance for credit losses was $106.9$247.7 million or 1.66% of total loans as of June 30, 2020, increasing $137.4 million and $140.7 million compared to December 31, 2019 and represents 0.85%June 30, 2019, respectively. Excluding the impact of PPP loans, allowance for credit losses to total loans down comparedwas 1.80% as of June 30, 2020. Adoption of the CECL standard on January 1, 2020 increased the allowance for credit losses by $75.8 million, which includes $31.6 million attributable to 0.90% at December 31, 2018, driven primarily by loans and unfunded commitments, $35.7 million for PCD acquired loans, and $8.5 million for non-PCD acquired loans. As a result of the pandemic, a provision for loan losses of $28.0 million and $25.0 million was recorded in the Bridgeview transaction, for which nofirst and second quarters of 2020, respectively. In addition, $14.3 million in allowance for credit losses was established atthrough acquisition accounting adjustments for PCD loans acquired in the timePark Bank acquisition in the first quarter of 2020 along with an additional $1.7 million in provision for loan losses on non-PCD loans subsequent to acquisition.
The provision for loan losses was $32.6 million for the quarter ended June 30, 2020, up from $9.6 million for the quarter ended December 31, 2019 and from $11.5 million for the quarter ended June 30, 2019, up from $9.8 million for the quarter ended December 31, 2018 and consistent with $11.6 million for the quarter ended June 30, 2018.2019. The increase compared to both prior periods was driven primarily by a provision for loan losses of $25.0 million recorded as a result of the quarter ended December 31, 2018 resulted primarily from higher levelsestimated impact of net charge-offs and loan growth.the pandemic.
Net loan charge-offs to average loans, annualized, were 0.31%0.36%, or $9.3$12.9 million, for the second quarter of 2019, down from 0.26% and 0.36%2020, compared to 0.29% for the fourth quarter of 2019 and 0.31% for the second quartersquarter of 2018, respectively.2019. Excluding charge-offs on PCD loans, net loan charge-offs to average loans of 0.27% was lower than both prior periods.
59



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 12
Loan Portfolio by Performing/Non-performing Status (1)
(Dollar amounts in thousands)
 Accruing  
 Current30-89 Days
Past Due		90 Days
Past Due		Non-accrualTotal
Loans
As of June 30, 2020     
Commercial and industrial$4,740,392  $19,725  $1,090  $28,349  $4,789,556  
Agricultural372,630  —  —  8,494  381,124  
Commercial real estate:   
Office, retail, and industrial1,981,444  2,363  596  35,915  2,020,318  
Multi-family870,202  1,538  —  3,121  874,861  
Construction658,892  801  88  27,282  687,063  
Other commercial real estate1,452,885  4,655  25  18,372  1,475,937  
Total commercial real estate4,963,423  9,357  709  84,690  5,058,179  
Total corporate loans, excluding
PPP loans		10,076,445  29,082  1,799  121,533  10,228,859  
PPP loans1,179,403  —  —  —  1,179,403  
Total corporate loans11,255,848  29,082  1,799  121,533  11,408,262  
Home equity881,540  2,011  187  9,129  892,867  
1-4 family mortgages2,162,531  4,293  —  8,498  2,175,322  
Installment454,996  956  1,255  —  457,207  
Total consumer loans3,499,067  7,260  1,442  17,627  3,525,396  
Total loans$14,754,915  $36,342  $3,241  $139,160  $14,933,658  
As of December 31, 2019     
Commercial and industrial$4,438,063  $11,260  $2,207  $29,995  $4,481,525  
Agricultural398,676  628  358  5,954  405,616  
Commercial real estate:   
Office, retail, and industrial1,820,502  1,813  546  25,857  1,848,718  
Multi-family853,762  94  —  2,697  856,553  
Construction588,065  4,876  —  152  593,093  
Other commercial real estate1,375,712  2,738  529  4,729  1,383,708  
Total commercial real estate4,638,041  9,521  1,075  33,435  4,682,072  
Total corporate loans9,474,780  21,409  3,640  69,384  9,569,213  
Home equity838,575  4,290  146  8,443  851,454  
1-4 family mortgages1,916,341  5,092  1,203  4,442  1,927,078  
Installment491,406  1,167  12  —  492,585  
Total consumer loans3,246,322  10,549  1,361  12,885  3,271,117  
Total loans$12,721,102  $31,958  $5,001  $82,269  $12,840,330  
(1) Prior to the adoption of CECL on January 1, 2020, PCI loans with an accretable yield were considered current and were not included in past due loan totals. In addition, PCI loans with an accretable yield were excluded from non-accrual loans. Subsequent to adoption, PCD loans, including those previously classified as PCI, are included in past due and non-accrual loan totals. In addition, an allowance for credit losses is established as of the acquisition date or upon the adoption of CECL for loans previously classified as PCI, as PCD loans are no longer recorded net of a credit-related acquisition adjustment.
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The following table provides a comparison of our non-performing assets and past due loans to prior periods.
Table 13
Non-Performing Assets and Past Due Loans
(Dollar amounts in thousands)
 As of
 June 30,
2020		March 31, 2020December 31, 2019September 30,
2019		June 30,
2019
Non-accrual loans, excluding PCD
  loans(1)(2)
$94,044  $97,649  $82,269  $77,692  $63,477  
Non-accrual PCD loans(1)
45,116  48,950  —  —  —  
Total non-accrual loans139,160  146,599  82,269  77,692  63,477  
90 days or more past due loans, still
  accruing interest(1)
3,241  5,052  5,001  4,657  2,615  
Total non-performing loans142,401  151,651  87,270  82,349  66,092  
Accruing TDRs1,201  1,216  1,233  1,422  1,441  
Foreclosed assets(3)
19,024  21,027  20,458  25,266  28,488  
Total non-performing assets$162,626  $173,894  $108,961  $109,037  $96,021  
30-89 days past due loans(1)
$36,342  $81,127  $31,958  $46,171  $34,460  
30-89 days past due loans, excluding PCD
  loans(1)(2)
$34,872  $75,581  $31,958  $46,171  $34,460  
Non-accrual loans to total loans:
Non-accrual loans to total loans0.93 %1.05 %0.64 %0.61 %0.51 %
Non-accrual loans to total loans, excluding
  PPP loans(1)(2)(4)
1.01 %1.05 %0.64 %0.61 %0.51 %
Non-accrual loans to total loans, excluding
  PCD and PPP loans(1)(2)(4)
0.70 %0.71 %0.64 %0.61 %0.51 %
Non-performing loans to total loans:
NPLs to total loans0.95 %1.09 %0.68 %0.64 %0.53 %
NPLs to total loans, excluding PPP
  loans(1)(2)(4)
1.04 %1.09 %0.68 %0.64 %0.53 %
NPLs to total loans, excluding PCD and
  PPP loans(1)(2)(4)
0.72 %0.75 %0.68 %0.64 %0.53 %
Non-performing assets to total loans plus foreclosed assets:
NPAs to total loans plus foreclosed assets1.09 %1.24 %0.85 %0.85 %0.77 %
NPAs to total loans plus foreclosed assets,
  excluding PPP loans(1)(2)(4)
1.18 %1.24 %0.85 %0.85 %0.77 %
NPAs to total loans plus foreclosed assets,
  excluding PCD and PPP loans(1)(2)(4)
0.87 %0.91 %0.85 %0.85 %0.77 %
(1)Prior to the adoption of CECL on January 1, 2020, PCI loans with an accretable yield were considered current and were not included in past due loan totals. In addition, PCI loans with an accretable yield were excluded from non-accrual loans. Subsequent to adoption, PCD loans, including those previously classified as PCI, are included in past due and non-accrual loan totals. In addition, an allowance for credit losses is established as of the acquisition date or upon the adoption of CECL for loans previously classified as PCI, as PCD loans are no longer recorded net of a credit-related acquisition adjustment.
(2)This item is a non-GAAP financial measure. For a discussion of non-GAAP financial measures, see the section of this Item 2 titled "Non-GAAP Financial Information and Reconciliations."
(3)Foreclosed assets consists of OREO and other foreclosed assets acquired in partial or total satisfaction of defaulted loans. Other foreclosed assets are included in other assets in the Consolidated Statements of Financial Condition.
(4)This ratio excludes PPP loans that are expected to be forgiven. As a result, no allowance for credit losses is associated with these loans. See the "Non-GAAP Financial Information" section presented later in this release for a discussion of this non-GAAP financial measure.
Total non-performing assets represented 1.09% of total loans and foreclosed assets at June 30, 2020, compared to 0.85% and 0.77% at December 31, 2019 and June 30, 2019, respectively. Excluding the impact of PCD and PPP loans, non-performing assets to total loans plus foreclosed assets was 0.87% at June 30, 2020, consistent with December 31, 2019 and up 10 basis points from June 30, 2019, reflective of normal fluctuations that occur on a quarterly basis. These fluctuations occurred within non-accrual loans and are isolated to certain credits for which the Company has remediation plans in place.
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Total 30-89 days past due loans, excluding PCD loans of $34.9 million were consistent with December 31, 2019 and June 30, 2019.
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 14
TDRs by Type
(Dollar amounts in thousands)
As of
 June 30, 2020December 31, 2019June 30, 2019
 Number
of Loans		AmountNumber
of Loans		AmountNumber
of Loans		Amount
Commercial and industrial7  $9,524  9  $16,647  5  $7,164  
Commercial real estate:      
Office, retail, and industrial1  2,340  1  3,600  1  383  
Multi-family1  160  1  163  1  167  
Other commercial real estate2  198  1  170  1  176  
Total commercial real estate4  2,698  3  3,933  3  726  
Total corporate loans11  12,222  12  20,580  8  7,890  
Home equity7  210  8  276  9  366  
1-4 family mortgages9  862  6  637  11  1,026  
Installment—  —  4  254  —  —  
Total consumer loans16  1,072  18  1,167  20  1,392  
Total TDRs27  $13,294  30  $21,747  28  $9,282  
Accruing TDRs12  $1,201  12  $1,233  14  $1,441  
Non-accrual TDRs15  12,093  18  20,514  14  7,841  
Total TDRs27  $13,294  30  $21,747  28  $9,282  
Year-to-date charge-offs on TDRs $6,102   $3,557   $628  
Specific allowances related to TDRs 2,385   2,245   670  
In March of 2020, the CARES Act was enacted by the U.S. government in response to the economic disruption caused by the pandemic. The Company's banking regulators issued a statement titled the "Interagency Statement on Loan Modifications by Financial Institutions Working with Customers Affected by the Coronavirus" that encourages financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations due to the effects of the pandemic. Additionally, the CARES Act provides that a qualified loan modification is exempt by law from classification as a TDR as defined by GAAP, from the period beginning March 1, 2020 until the earlier of December 31, 2020 or the date that is 60 days after the date on which the national emergency concerning the pandemic declared by the President of the United States terminates. Accordingly, we are offering short-term modifications made in response to the pandemic to borrowers who are current and otherwise not past due. These include short-term modifications in the form of payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. The total balance of loans with eligible modifications as of June 30, 2020 was $1.9 billion.
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Adverse Loans
Adverse loans consist of corporate 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 15
Adverse Loans
(Dollar amounts in thousands)
 As of June 30, 2020As of December 31, 2019
 
Special
Mention(1)
Substandard(2)
Total(3)
Special
Mention(1)
Substandard(2)
Total(3)
Commercial and industrial$131,677  $92,349  $224,026  $47,665  $78,929  $126,594  
Agricultural21,154  22,373  43,527  32,764  16,071  48,835  
Commercial real estate103,542  78,615  182,157  108,274  93,811  202,085  
Total adverse loans(4)
256,373  193,337  449,710  188,703  188,811  377,514  
PCD and PCI adverse loans
  included in the totals above(4)
(48,028) (29,870) (77,898) (21,892) (46,207) (68,099) 
Adverse loans to corporate loans2.25 %1.69 %3.94 %1.97 %1.97 %3.95 %
Adverse loans, excluding PPP
  loans to corporate loans(5)(6)
2.51 %1.89 %4.40 %1.97 %1.97 %3.95 %
(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 adverse loans excludes accruing TDRs.
(4)Includes PCD adverse loans, subsequent to the adoption of CECL on January 1, 2020. Prior to the adoption of CECL, included PCI adverse loans.
(5)This ratio excludes PPP loans that are expected to be forgiven. As a result, no allowance for credit losses is associated with these loans.
(6)This item is a non-GAAP financial measure. For a discussion of non-GAAP financial measures, see the section of this Item 2 titled "Non-GAAP Financial Information and Reconciliations."
Adverse loans to corporate loans was 3.94% at June 30, 2020. Excluding the impact of PPP loans on this metric, adverse loans to corporate loans was 4.40% compared to 3.95% at December 31, 2019. The increase resulted primarily from higher levels of commercial and industrial loans classified as special mention and substandard. Management has specific monitoring and remediation plans associated with these loans. The increase in PCD and PCI adverse loans was driven primarily by loans acquired in the Park Bank transaction, partially offset by the transition of certain loans previously classified as PCI to non-accrual PCD status upon adoption of CECL.
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Foreclosed Assets
Foreclosed assets consists of OREO and other foreclosed assets acquired in partial or total satisfaction of defaulted loans.
Table 16
Foreclosed Assets by Type
(Dollar amounts in thousands)
As of
 June 30, 2020December 31, 2019June 30, 2019
Single-family homes$1,639  $1,636  $3,671  
Land parcels:   
Raw land—  —  —  
Commercial lots4,253  5,178  6,086  
Single-family lots1,543  1,543  2,190  
Total land parcels5,796  6,721  8,276  
Multi-family units117  —  139  
Commercial properties2,395  393  3,227  
Total OREO9,947  8,750  15,313  
Other foreclosed assets(1)
9,077  11,708  13,175  
Total$19,024  $20,458  $28,488  
(1)Other foreclosed assets are included in other assets in the Consolidated Statements of Financial Condition.
Other foreclosed assets as of June 30, 2020 includes one corporate loan relationship for which the Company has remediation plans in place.
A rollforward of foreclosed assets balances for the quarters and six months ended June 30, 2020 and 2019 is presented in the following table.
Table 17
Foreclosed Assets Rollforward
(Dollar amounts in thousands)
Quarters Ended June 30,Six Months Ended June 30,
 2020201920202019
Beginning balance$21,027  $10,818  $20,458  $12,821  
Transfers from loans—  13,497  121  13,497  
Acquisitions133  6,237  2,001  6,237  
Acquisition accounting adjustment—  —  (567) —  
Proceeds from sales(328) (2,441) (1,053) (5,236) 
Gains on sales of foreclosed assets—  246  142  353  
Valuation adjustments(1,808) 131  (2,078) 816  
Ending balance$19,024  $28,488  $19,024  $28,488  


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FUNDING AND LIQUIDITY MANAGEMENT
The following table provides a comparison of average funding sources. We believe that average balances, rather than period-end balances, are more meaningful in analyzing funding sources because of the normal fluctuations that may occur on a daily or monthly basis within funding categories.
Table 1918
Funding Sources – Average Balances
(Dollar amounts in thousands)
Quarters Ended June 30, 2019 % Change From Quarters EndedJune 30, 2020
% Change From
June 30,
2019		 December 31,
2018		 June 30,
2018		  December 31,
2018		 June 30,
2018		 June 30,
2020		December 31,
2019		June 30,
2019		December 31,
2019		June 30,
2019
Demand deposits$3,835,567
 $3,685,806
 $3,621,645
  4.1
 5.9
Demand deposits$5,305,109  $3,862,157  $3,835,567  37.4  38.3  
Savings deposits2,079,852
 2,044,312
 2,060,066
  1.7
 1.0
Savings deposits2,246,643  2,044,386  2,079,852  9.9  8.0  
NOW accounts2,261,103
 2,128,722
 2,065,530
  6.2
 9.5
NOW accounts2,549,088  2,291,667  2,261,103  11.2  12.7  
Money market accounts1,907,766
 1,831,311
 1,759,313
  4.2
 8.4
Money market accounts2,663,622  2,178,518  1,907,766  22.3  39.6  
Core deposits10,084,288
 9,690,151
 9,506,554
  4.1
 6.1
Core deposits12,764,462  10,376,728  10,084,288  23.0  26.6  
Time deposits2,707,950
 2,190,251
 1,860,561
  23.6
 45.5
Time deposits2,431,312  2,792,343  2,707,950  (12.9) (10.2) 
Brokered deposits141,980
 121,202
 11,105
  17.1
 1,178.5
Brokered deposits108,684  241,560  141,980  (55.0) (23.5) 
Total time deposits2,849,930
 2,311,453
 1,871,666
  23.3
 52.3
Total time deposits2,539,996  3,033,903  2,849,930  (16.3) (10.9) 
Total deposits12,934,218
 12,001,604
 11,378,220
  7.8
 13.7
Total deposits15,304,458  13,410,631  12,934,218  14.1  18.3  
Securities sold under agreements to
repurchase
107,751
 118,749
 114,726
  (9.3) (6.1)Securities sold under agreements to
repurchase		130,122  97,843  107,751  33.0  20.8  
Federal funds purchased26,263
 9,022
 714
  191.1
 3,578.3
Federal funds purchased68,057  114,180  26,263  (40.4) 159.1  
FHLB advances891,337
 903,478
 798,462
  (1.3) 11.6
FHLB advances2,268,121  1,347,303  891,337  68.3  154.5  
Total borrowed funds1,025,351
 1,031,249
 913,902
  (0.6) 12.2
Total borrowed funds2,466,300  1,559,326  1,025,351  58.2  140.5  
Senior and subordinated debt220,756
 204,030
 195,385
  8.2
 13.0
Senior and subordinated debt234,259  233,848  220,756  0.2  6.1  
Total funding sources$14,180,325
 $13,236,883
 $12,487,507
  7.1
 13.6
Total funding sources$18,005,017  $15,203,805  $14,180,325  18.4  27.0  
Average interest rate paid on
borrowed funds
1.74% 1.72% 1.54%     
Average interest rate paid on
borrowed funds
0.51 %1.17 %1.74 %  
Weighted-average maturity of FHLB
advances
19.0 months
 1.2 months
 1.1 months
     
Weighted-average maturity of FHLB
advances
60.4 months52.4 months19.0 months  
Weighted-average interest rate of
FHLB advances
2.23% 2.53% 2.05%     
Weighted-average interest rate of
FHLB advances
0.76 %1.34 %2.23 %  
Total average funding sources for the second quarter of 20192020 increased $943.4 million,$2.8 billion, or 7.1%18.4% from the fourth quarter of 20182019 and $1.7$3.8 billion, or 13.6%27.0%, compared to the second quarter of 2018.2019. The increase in total average depositsfunding sources compared to both prior periods was driven by $566.6 million of total average deposits assumedresulted primarily from the Park Bank transaction in the Bridgeview transactionfirst quarter of 2020, FHLB advances, and organic growth.higher customer balances resulting from PPP loan funds and other government stimulus. In addition, the rise in total average depositsfunding sources compared to the second quarter of 20182019 was impacted by deposits assumed in the Northern States transaction and various time deposit marketing initiatives.Bridgeview transactions. The increase in the weighted-average maturity of FHLB

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advances compared to June 30, 2019 was driven by the addition of putable FHLB advances during the second quarterfirst six months of 20192020 that mature between April of 2020 and March of 2030.
As of June 30, 2020, the Company had $7.5 billion of 2024additional funding sources to provide ample capacity to support its clients, colleagues, and communities, with $4.2 billion of the additional funding comprised of $2.4 billion of unencumbered securities and cash, $807.0 million of Federal Reserve availability, and $1.0 billion of available FHLB capacity. In addition, the Company has the ability to utilize the Paycheck Protection Program Liquidity Facility ("PPPLF") to fund PPP demand for loans. As of June of 2029.30, 2020, no amount was outstanding under the PPPLF.

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Table 19
Borrowed Funds
(Dollar amounts in thousands)
June 30, 2019 June 30, 2018 June 30, 2020June 30, 2019
Amount 
Weighted-
Average
Rate (%)
  Amount 
Weighted-
Average
Rate (%)
 AmountWeighted-
Average
Rate (%)		AmountWeighted-
Average
Rate (%)
At period-end:        At period-end:    
Securities sold under agreements to repurchase$97,378
 0.09  $111,044
 0.08Securities sold under agreements to repurchase$130,667  0.05  $97,378  0.09  
Federal funds purchasedFederal funds purchased200,000  0.05  —  —  
FHLB advances1,310,000
 2.23  870,000
 2.05FHLB advances1,974,528  0.76  1,310,000  2.23  
Total borrowed funds$1,407,378
 2.08  $981,044
 1.83Total borrowed funds$2,305,195  0.65  $1,407,378  2.08  
Average for the year-to-date period:        Average for the year-to-date period:    
Securities sold under agreements to repurchase$110,220
 0.08  $117,275
 0.07Securities sold under agreements to repurchase$117,255  0.11  $110,220  0.08  
Federal funds purchased13,564
 2.51  6,022
 1.64Federal funds purchased163,178  1.09  13,564  2.51  
FHLB advances828,296
 1.90  762,956
 1.82FHLB advances1,956,567  0.83  828,296  1.90  
Total borrowed funds$952,080
 1.70  $886,253
 1.59Total borrowed funds$2,237,000  0.81  $952,080  1.70  
Maximum amount outstanding at the end of any day during the period:Maximum amount outstanding at the end of any day during the period:       Maximum amount outstanding at the end of any day during the period:   
Securities sold under agreements to repurchase$122,441
    $128,553
  Securities sold under agreements to repurchase$159,751   $122,441   
Federal funds purchased295,000
  65,000
 Federal funds purchased400,000  295,000  
FHLB advances1,310,000
    945,000
  FHLB advances2,420,528   1,310,000   
Average borrowed funds totaled $952.1 million$2.2 billion for the first six monthssecond quarter of 2019,2020, increasing by $65.8 million$1.3 billion compared to the same period in 2018.2019. This increase was due primarily to higher levels of FHLB advances.advances and federal funds purchased. The weighted-average rate on FHLB advancesborrowed funds for both periods presented was impacted by the hedging of $1.1 billion and $685.0 million and $710.0 million in FHLB advancesof borrowed funds as of June 30, 20192020 and 2018,2019, respectively, using interest rate swaps through which the Company receives variable amounts and pays fixed amounts. The weighted-average interest rate paid on these interest rate swaps was 1.92%1.00% and 1.91%1.92% as of June 30, 20192020 and 2018,2019, respectively. For a detailed discussion of interest rate swaps, see Note 1112 of "Notes to the Condensed Consolidated Financial Statements" in Part I, Item 1 of this Form 10-Q.
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, 2019.2020. Advances will bear interest at a rate equal to one-month LIBOR plus 1.75%, adjusted on a monthly basis, and the Company must pay an unused facility fee equal to 0.35% per annum on a quarterly basis. As of June 30, 2019,2020, no amount was outstanding under the facility.
We make interchangeable use of repurchase agreements, FHLB advances, and federal funds purchased to supplement deposits. Securities sold under agreements to repurchase generally mature within 1 to 90 days from the transaction date.
MANAGEMENT OF CAPITAL
Capital Measurements
A strong capital structure is required under applicable banking regulations and is crucial in maintaining investor confidence, accessing capital markets, and enabling us to take advantage of future growth opportunities. Our capital policy requires that the Company and the Bank maintain capital ratios in excess of the minimum regulatory guidelines. It serves as an internal discipline in analyzing business risks and internal growth opportunities and sets targeted levels of return on equity. Under regulatory capital adequacy guidelines, the Company and the Bank are subject to various capital requirements set and administered by the federal banking agencies. The Company and the Bank are subject to the Basel III Capital rules, a comprehensive capital framework for U.S. banking organizations published by the Federal Reserve. These rules are discussed in the "Supervision and Regulation" section in Item 1, "Business" in the Company's 20182019 10-K.
The following table presents our consolidatedthe Company's and the Bank's measures of capital as of the dates presented and the capital guidelines established by the Federal Reserve for the Bank to be categorized as "well-capitalized."Company and the Bank. We manage our capital levels for both the Company and the Bank to consistently maintain these measurements in excess of the Federal Reserve's minimum levels to be considered

64



"well-capitalized," which is the highest capital category established.levels. All regulatory mandated ratios for characterization of the Bank as "well-capitalized" were exceeded as of June 30, 20192020 and December 31, 2018.2019.
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Table 20
Capital Measurements
(Dollar amounts in thousands)
As of June 30, 2020
    As of June 30, 2019Minimum Requirement
Plus Capital
Conservation Buffer
Well-Capitalized(1)
As of 
Regulatory
Minimum
For
Well-
Capitalized
  As ofMinimumExcess
Over
Minimums		MinimumExcess
Over
Minimums
June 30, 
 2019		 December 31, 2018 Excess Over
Required Minimums		 June 30, 
 2020		December 31, 2019
Bank regulatory capital ratios         Bank regulatory capital ratios
Total capital to risk-weighted assets11.38% 11.39% 10.00% 14% $192,746
Total capital to risk-weighted assets11.12 %11.28 %10.50 %$95,407  10.00 %$172,513  
Tier 1 capital to risk-weighted assets10.61% 10.58% 8.00% 33% $366,118
Tier 1 capital to risk-weighted assets10.15 %10.51 %8.50 %$253,914  8.00 %$331,020  
CET1 to risk-weighted assets10.61% 10.58% 6.50% 63% $576,343
CET1 to risk-weighted assets10.15 %10.51 %7.00 %$485,232  6.50 %$562,338  
Tier 1 capital to average assets9.41% 9.41% 5.00% 88% $696,982
Tier 1 capital to average assets8.24 %8.79 %4.00 %$804,735  5.00 %$614,740  
Company regulatory capital ratios         Company regulatory capital ratios
Total capital to risk-weighted assets12.57% 12.62% N/A
 N/A
 N/A
Total capital to risk-weighted assets13.70 %12.96 %10.50 %$495,182  10.00 %$572,474  
Tier 1 capital to risk-weighted assets10.11% 10.20% N/A
 N/A
 N/A
Tier 1 capital to risk-weighted assets11.19 %10.52 %8.50 %$415,927  6.00 %$802,386  
CET1 to risk-weighted assets10.11% 10.20% N/A
 N/A
 N/A
CET1 to risk-weighted assets9.70 %10.52 %7.00 %$417,940  N/AN/A
Tier 1 capital to average assets8.96% 8.90% N/A
 N/A
 N/A
Tier 1 capital to average assets8.70 %8.81 %4.00 %$704,664  N/AN/A
Company tangible common equity ratios(2)(3)
             
Tangible common equity to tangible assets8.57% 8.59% N/A
 N/A
 N/A
Tangible common equity to tangible assets7.32 %8.81 %N/AN/AN/AN/A
Tangible common equity, excluding
accumulated other comprehensive loss, to
tangible assets
8.59% 8.95% N/A
 N/A
 N/A
Tangible common equity to tangible assets,
excluding PPP loans		Tangible common equity to tangible assets,
excluding PPP loans		7.77 %8.81 %N/AN/AN/AN/A
Tangible common equity, excluding
accumulated other comprehensive income (loss),
to tangible assets		Tangible common equity, excluding
accumulated other comprehensive income (loss),
to tangible assets		7.17 %8.82 %N/AN/AN/AN/A
Tangible common equity, excluding
accumulated other comprehensive income (loss),
to tangible assets, excluding PPP loans		Tangible common equity, excluding
accumulated other comprehensive income (loss),
to tangible assets, excluding PPP loans		7.62 %8.82 %N/AN/AN/AN/A
Tangible common equity to risk-weighted
assets
10.11% 9.81% N/A
 N/A
 N/A
Tangible common equity to risk-weighted
assets		9.61 %10.51 %N/AN/AN/AN/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."
Capital(1)"Well-capitalized" minimum CET1 to risk-weighted assets and Tier 1 capital to average assets ratios were consistentare not formally defined under applicable banking regulations for bank holding companies.
(2)Ratios are not subject to formal Federal Reserve regulatory guidance.
(3)Tangible common equity ratios are non-GAAP financial measures. For a discussion of non-GAAP financial measures, see the section of this Item 2 titled "Non-GAAP Financial Information and Reconciliations."
Total and Tier 1 capital ratios increased compared to December 31, 20182019 as strong earnings and deferred gains recognized due to the adoptionissuance of lease accounting guidance at the beginning of 2019 werepreferred stock more than offset by the Bridgeview and Northern Oak acquisitions, the impact of loan growth and securities purchases on risk-weighted assets,assets. In addition, all capital ratios were impacted by the approximately 50 basis point decrease due to the Park Bank acquisition, and 15 basis point decrease due to stock repurchases.repurchasesin the first quarter of 2020. The Company elected CECL transition relief for regulatory capital which retained approximately 25 basis points of CET1 and Tier 1 capital as of June 30, 2020.
In February of 2019, the federal bank regulatory agencies issued a final rule, the 2019 CECL Rule, that revised certain capital regulations to account for changes to credit loss accounting under U.S. GAAP. The 2019 CECL Rule included a transition option that allows banking organizations to phase in, over a three-year period, the day-one adverse effects of CECL on their regulatory capital ratios (three-year transition option). In March of 2020, the federal bank regulatory agencies issued an interim final rule that maintains the three year transition option of the 2019 CECL Rule and also provides banking organizations that were required under GAAP (as of January 2020) to implement CECL before the end of 2020 the option to delay for two years an estimate of the effect of CECL on regulatory capital, relative to the incurred loss methodology's effect on regulatory capital, followed by a three-year transition period (five-year transition option). The Company elected to adopt the five-year transition option, which retained approximately 25 basis points of CET1 and Tier 1 capital as of June 30, 2020. This election of the transition option is applicable only to regulatory capital computations under federal banking regulations and does not otherwise impact the financial statements prepared in accord with GAAP.
67



The Company's Board of Directors (the "Board") reviews the Company's capital plan each quarter, considering the current and expected operating environment as well as evaluating various capital alternatives.
DividendsIssuance of Preferred Stock
The Company's Board of Directors approved a quarterly cash dividend of $0.14 per common share duringDuring the second quarter of 2019, which is an increase of 17% from the first quarter of 2019 and 27% from the second quarter of 2018. This dividend represents the 146th consecutive cash dividend paid by2020, the Company since its inceptionissued 4.3 million depositary shares, each representing a 1/40th interest in 1983.a share of the Company's 7.000% Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series A, and 4.9 million depositary shares, each representing a 1/40th interest in a share of the Company's Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series C, for an aggregate of $230.5 million. The Company received proceeds of $221.3 million, net of underwriting discounts and commissions and issuance costs and expects to use the proceeds for general corporate purposes.
Stock Repurchase Program
On March 19, 2019,February 26, 2020, the Company announced a new stock repurchase program that authorizesauthorizing the Company todiscretionary repurchase of up to $180$200 million of its common stock. Stock repurchases under thisThis program may be made from time to time onreplaced the open market or in privately negotiated transactions, at the discretion of the Company. The program will be in effect for a one-year period, with repurchases made at prices to be determined by the Company. TheCompany's prior $180 million stock repurchase program, does not obligatewhich was set to expire in March 2020. The Company suspended repurchases in March as it shifted its capital deployment strategy in response to the pandemic. Prior to the suspension, the Company to repurchase a specific dollar amount or number of shares, and the program may be extended, modified, or discontinued at any time.
The Company repurchased approximately 1.01.2 million shares of its common stock at a total cost of $21.2$22.6 million during the six months ended June 30, 2020.
Dividends
The Board approved a quarterly cash dividend of $0.14 per common share during the second quarter of 2019.

65



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 acquired loans, return on average common equity, adjusted, tangible common equity to tangible assets, tangible common equity, excluding accumulated other comprehensive income (loss) ("AOCI"), to tangible assets, tangible common equity to risk-weighted assets, return on average tangible common equity, and return on average tangible common equity, adjusted.adjusted, non-accrual loans, excluding PCD loans, 30-89 days past due loans, excluding PCD loans, non-accrual loans to total loans, excluding PPP loans, non-accrual loans to total loans, excluding PCD and PPP loans, non-performing loans to total loans, excluding PPP loans, non-performing loans to total loans, excluding PCD and PPP loans, non-performing assets to total loans plus foreclosed assets, excluding PPP loans, non-performing assets to total loans plus foreclosed assets, excluding PCD and PPP loans, net loan charge-offs, excluding PCD loans, and net loan charge-offs to average loans, excluding PPP loans, net loan charge-offs to average loans, excluding PCD and PPP loans., excluding PCD loans, adverse loans to average corporate loans, excluding PPP loans, and adverse loans to average corporate loans, excluding PCD and PCI loans.
The Company presents its EPS, efficiency ratio, return on average assets, return on average common equity, and return on average tangible common equity, all adjusted for certain significant transactions. These transactions include Delivering Excellence implementation costs (six months ended June 30, 2019), net securities losses (six months ended June 30, 2020), and acquisition and integration related expenses associated with completed and pending acquisitions.acquisitions (all periods). In addition, net OREO expense is excluded from the calculation of the efficiency ratio. Management believes excluding these transactions from our EPS, efficiency ratio, return on average assets, return on average common equity, and return on average tangible common equity may be useful in assessing the Company's underlying operational performance since these transactions do not pertain to its core business operations and their exclusion may facilitate better comparability between periods. Management believes that excluding acquisition and integration related expenses from these metrics may be useful to the Company, as well as analysts and investors, since these expenses can vary significantly based on the size, type, and structure of each acquisition. Additionally, management believes excluding these transactions from these metrics may enhance comparability for peer comparison purposes.
The Company presents noninterest expense, adjusted, which excludes Delivering Excellence implementation costs and acquisition and integration related expenses. Management believes that excluding these items from noninterest expense may be useful in assessing the Company's underlying operational performance as these items either do not pertain to its core business operations or their exclusion may facilitate better comparability between periods and for peer comparison purposes.
68



The tax-equivalent adjustment to net interest income and net interest margin recognizes the income tax savings when comparing taxable and tax-exempt assets. Interest income and yields on tax-exempt securities and loans are presented using the current federal income tax rate of 21%. Management believes that it is standard practice in the banking industry to present net interest income and net interest margin on a fully tax-equivalent basis and that it may enhance comparability for peer comparison purposes. In addition, management believes that presenting tax-equivalent net interest margin, adjusted, may enhance comparability for peer comparison purposes and may be useful to the Company, as well as analysts and investors, since acquired loan accretion income may fluctuate based on the size of each acquisition, as well as from period to period.
In management's view, tangible common equity measures are capital adequacy metrics that may be meaningful to the Company, as well as analysts and investors, in assessing the Company's use of equity and in facilitating comparisons with peers. These non-GAAP measures are valuable indicators of a financial institution's capital strength since they eliminate intangible assets from stockholders' equity and retain the effect of accumulated other comprehensive lossincome (loss) in stockholders' equity.
The Company presents the allowance for credit lossesnon-accrual loans, 30-89 days past due loans, non-accrual loans to total loans, non-performing loans to total loans, non-performing assets to total loans plus foreclosed assets, net loan charge-offs, net loan charge-offs to average loans, and CPPPLs to average corporate loans, all excluding acquiredPCD and/or PPP loans. Management believes excluding acquiredPCD and PPP loans may beis useful as it may facilitatefacilitates better comparability between periods as theseprior to the adoption of CECL on January 1, 2020, PCI loans arewith an accretable yield were considered current and were not included in past due and non-accrual loan totals and the portion of PCI loans deemed to be uncollectible was recorded at fair value, which incorporates credit risk, atas a reduction of the date of acquisition. No allowance for credit losses is recorded on the acquisition date. As thecredit-related acquisition adjustment, is accreted into income over future periods,which was netted within loans. Subsequent to adoption, PCD loans, including those previously classified as PCI, are included in past due and non-accrual loan totals and an allowance for credit losses on PCD loans is established as necessaryof the acquisition date and the PCD loans are no longer recorded net of a credit-related acquisition adjustment. PCD loans deemed to reflectbe uncollectible are recorded as a charge-off through the allowance for credit deterioration.losses. The Company began originating PPP loans during the second quarter of 2020 and the loans are expected to be forgiven by the Small Business Administration ("SBA") if the applicable criteria are met. Additionally, management believes excluding these transactionsPCD loans from these metrics may enhance comparability for peer comparison purposes. See Table 17 in the section of this Item 2 titled "Loan Portfolio and Credit Quality" for details on the calculation of this measure.
Although intended to enhance investors' understanding of the Company's business and performance, these non-GAAP financial measures should not be considered an alternative to GAAP. In addition, these non-GAAP financial measures may differ from those used by other financial institutions to assess their business and performance. See the previously provided tables and the following reconciliations for details on the calculation of these measures to the extent presented herein.

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Non-GAAP Reconciliations
(Amounts in thousands, except per share data)
 Quarters Ended 
 June 30,		 Six Months Ended 
 June 30,		Quarters Ended 
 June 30,		Six Months Ended 
 June 30,
 2019 2018 2019 20182020201920202019
EPS        EPS
Net income $47,014
 $29,600
  $93,072
 $63,110
Net income$19,064  $47,014  $38,670  $93,072  
Preferred dividendsPreferred dividends(1,037) —  (1,037) —  
Net income applicable to non-vested restricted shares (389) (240)  (792) (551)Net income applicable to non-vested restricted shares(187) (389) (379) (792) 
Net income applicable to common shares 46,625
 29,360
  92,280
 62,559
Net income applicable to common shares17,840  46,625  37,254  92,280  
Adjustments to net income:         Adjustments to net income:
Acquisition and integration related expenses 9,514
 —
  13,205
 —
Acquisition and integration related expenses5,249  9,514  10,721  13,205  
Tax effect of acquisition and integration related expenses (2,379) —
  (3,301) —
Tax effect of acquisition and integration related expenses(1,312) (2,379) (2,680) (3,301) 
Net securities lossesNet securities losses—  —  1,005  —  
Tax effect of net securities lossesTax effect of net securities losses—  —  (251) —  
Delivering Excellence implementation costs 442
 15,015
  700
 15,015
Delivering Excellence implementation costs—  442  —  700  
Tax effect of Delivering Excellence implementation costs (111) (3,754)  (175) (3,754)Tax effect of Delivering Excellence implementation costs—  (111) —  (175) 
Total adjustments to net income, net of tax 7,466
 11,261
  10,429
 11,261
Total adjustments to net income, net of tax3,937  7,466  8,795  10,429  
Net income applicable to common shares, adjusted $54,091
 $40,621
  $102,709
 $73,820
Net income applicable to common shares, adjusted$21,777  $54,091  $46,049  $102,709  
Weighted-average common shares outstanding:Weighted-average common shares outstanding:       Weighted-average common shares outstanding:
Weighted-average common shares outstanding (basic) 108,467
 102,159
  107,126
 102,041
Weighted-average common shares outstanding (basic)113,145  108,467  111,533  107,126  
Dilutive effect of common stock equivalents —
 —
  —
 8
Dilutive effect of common stock equivalents191  —  339  —  
Weighted-average diluted common shares outstanding 108,467
 102,159
  107,126
 102,049
Weighted-average diluted common shares outstanding113,336  108,467  111,872  107,126  
Basic EPS $0.43
 $0.29
  $0.86

$0.61
Basic EPS$0.16  $0.43  $0.33  $0.86  
Diluted EPS $0.43
 $0.29
  $0.86

$0.61
Diluted EPS$0.16  $0.43  $0.33  $0.86  
Diluted EPS, adjusted $0.50
 $0.40
  $0.96

$0.72
Diluted EPS, adjusted$0.19  $0.50  $0.41  $0.96  
Return on Average AssetsReturn on Average Assets       Return on Average Assets
Net income $47,014
 $29,600
  $93,072
 $63,110
Net income$19,064  $47,014  $38,670  $93,072  
Total adjustments to net income, net of tax(1)
 7,466
 11,261
  10,429
 11,261
Total adjustments to net income, net of tax(1)
3,937  7,466  8,795  10,429  
Net income, adjusted $54,480
 $40,861
  $103,501
 $74,371
Net income, adjusted$23,001  $54,480  $47,465  $103,501  
Average assets $16,740,050
 $14,605,715
  $16,206,906
 $14,397,540
Average assets$20,868,106  $16,740,050  $19,636,463  $16,206,906  
Return on average assets(2)(3)
 1.13% 0.81%  1.16% 0.88%
Return on average assets(2)(3)
0.37 %1.13 %0.40 %1.16 %
Return on average assets, adjusted(1)(2)(3)
 1.31% 1.12%  1.29% 1.04%
Return on average assets, adjusted(1)(2)(3)
0.44 %1.31 %0.49 %1.29 %
Note: Non-GAAP Reconciliations footnotes are located at the end of this section.Note: Non-GAAP Reconciliations footnotes are located at the end of this section.
70
  Quarters Ended 
 June 30,		  Six Months Ended 
 June 30,
  2019 2018  2019 2018
Return on Average Common and Tangible Common Equity       
Net income applicable to common shares $46,625
 $29,360
  $92,280
 $62,559
Intangibles amortization 2,624
 1,794
  4,987
 3,596
Tax effect of intangibles amortization (656) (449)  (1,247) (957)
Net income applicable to common shares, excluding
  intangibles amortization
 48,593
 30,705
  96,020
 65,198
Total adjustments to net income, net of tax(1)
 7,466
 11,261
  10,429
 11,261
Net income applicable to common shares, excluding
  intangibles amortization, adjusted(1)
 $56,059
 $41,966
  $106,449
 $76,459
Average stockholders' common equity $2,241,569
 $1,890,727
  2,190,210
 $1,882,121
Less: average intangible assets (832,263) (753,887)  (817,915) (753,879)
Average tangible common equity $1,409,306
 $1,136,840
  $1,372,295
 $1,128,242
Return on average common equity(2)(3)
 8.34% 6.23%  8.50% 6.70%
Return on average common equity, adjusted(1)(2)(3)
 9.68% 8.62%  9.46% 7.91%
Return on average tangible common equity(2)(3)
 13.83% 10.83%  14.11% 11.65%
Return on average tangible common equity, adjusted(1)(2)(3)
 15.95% 14.81%  15.64% 13.67%
          
Note: Non-GAAP Reconciliations footnotes are located at the end of this section.     



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Quarters Ended 
 June 30,		Six Months Ended 
 June 30,
2020201920202019
Return on Average Common and Tangible Common Equity
Net income applicable to common shares$17,840  $46,625  $37,254  $92,280  
Intangibles amortization2,820  2,624  5,590  4,987  
Tax effect of intangibles amortization(705) (656) (1,398) (1,247) 
Net income applicable to common shares, excluding
intangibles amortization		19,955  48,593  41,446  96,020  
Total adjustments to net income, net of tax(1)
3,937  7,466  8,795  10,429  
Net income applicable to common shares, excluding
  intangibles amortization, adjusted(1)
$23,892  $56,059  $50,241  $106,449  
Average stockholders' common equity$2,443,212  $2,241,569  2,429,184  $2,190,210  
Less: average intangible assets(934,022) (832,263) (910,811) (817,915) 
Average tangible common equity$1,509,190  $1,409,306  $1,518,373  $1,372,295  
Return on average common equity(2)(3)
2.94 %8.34 %3.08 %8.50 %
Return on average common equity, adjusted(1)(2)(3)
3.58 %9.68 %3.81 %9.46 %
Return on average tangible common equity(2)(3)
5.32 %13.83 %5.49 %14.11 %
Return on average tangible common equity, adjusted(1)(2)(3)
6.37 %15.95 %6.65 %15.64 %
Note: Non-GAAP Reconciliations footnotes are located at the end of this section.

Quarters Ended 
 June 30,		Six Months Ended 
 June 30,
2020201920202019
Efficiency Ratio Calculation
Noninterest expense$120,330  $114,142  $237,661  $216,252  
Less:
Net OREO expense(126) (294) (546) (975) 
Acquisition and integration related expenses(5,249) (9,514) (10,721) (13,205) 
Delivering Excellence implementation costs—  (442) —  (700) 
Total$114,955  $103,892  $226,394  $201,372  
Tax-equivalent net interest income(2)
$146,389  $151,492  $291,117  $291,624  
Noninterest income32,991  38,526  72,353  73,432  
Less: net securities losses—  —  1,005  —  
Total$179,380  $190,018  $364,475  $365,056  
Efficiency ratio64.08 %54.67 %62.12 %55.16 %
Note: Non-GAAP Reconciliations footnotes are located at the end of this section.

71



 Quarters Ended 
 June 30,		  Six Months Ended 
 June 30,
 2019 2018  2019 2018
Efficiency Ratio Calculation        
Noninterest expense$114,142
 $113,416
  $216,252
 $208,998
Less:        
Net OREO expense(294) 256
  (975) (812)
Acquisition and integration related expenses(9,514) —
  (13,205) —
Delivering Excellence implementation costs(442) (15,015)  (700) (15,015)
Total$103,892
 $98,657
  $201,372
 $193,171
Tax-equivalent net interest income(2)
$151,492
 $128,442
  $291,624
 $247,980
Noninterest income38,526
 36,947
  73,432
 72,464
Total$190,018
 $165,389
  $365,056
 $320,444
Efficiency ratio54.67% 59.65%  55.16% 60.28%
         
Note: Non-GAAP Reconciliations footnotes are located at the end of this section.     
 As ofAs of
 June 30, 2019 December 31, 2018June 30, 2020December 31, 2019
Tangible Common Equity    Tangible Common Equity
Stockholders' equity $2,300,573
 $2,054,998
Stockholders' equity$2,425,711  $2,370,793  
Less: goodwill and other intangible assets (878,802) (790,744)Less: goodwill and other intangible assets(940,182) (875,262) 
Tangible common equity 1,421,771
 1,264,254
Tangible common equity1,485,529  1,495,531  
Less: AOCI 2,810
 52,512
Less: AOCI(28,727) 1,954  
Tangible common equity, excluding AOCI $1,424,581
 $1,316,766
Tangible common equity, excluding AOCI$1,456,802  $1,497,485  
Total assets $17,462,233
 $15,505,649
Total assets$21,244,881  $17,850,397  
Less: goodwill and other intangible assets (878,802) (790,744)Less: goodwill and other intangible assets(940,182) (875,262) 
Tangible assets $16,583,431
 $14,714,905
Tangible assets$20,304,699  $16,975,135  
Less: PPP loansLess: PPP loans(1,179,403) $—  
Tangible assetsTangible assets$19,125,296  $16,975,135  
Risk-weighted assets $14,056,482
 $12,892,180
Risk-weighted assets$15,458,361  $14,225,444  
Tangible common equity to tangible assets 8.57% 8.59%Tangible common equity to tangible assets7.32 %8.81 %
Tangible common equity to tangible assets, excluding PPP loansTangible common equity to tangible assets, excluding PPP loans7.77 %8.81 %
Tangible common equity, excluding AOCI, to tangible assets 8.59% 8.95%Tangible common equity, excluding AOCI, to tangible assets7.17 %8.82 %
Tangible common equity, excluding AOCI, to tangible assets, excluding PPP loansTangible common equity, excluding AOCI, to tangible assets, excluding PPP loans7.62 %8.82 %
Tangible common equity to risk-weighted assets 10.11% 9.81%Tangible common equity to risk-weighted assets9.61 %10.51 %
    
Footnotes for non-GAAP reconciliations
(1)
(1)Adjustments to net income for each period presented are detailed in the EPS non-GAAP reconciliation above.
(2)Presented on a tax-equivalent basis, assuming the federal income tax rate of 21%.
(3)Annualized based on the actual number of days for each period presented.
Adjustments to net income for each period presented are detailed in the EPS non-GAAP reconciliation above.
(2)
Presented on a tax-equivalent basis, assuming the federal income tax rate of 21%.
(3)
Annualized based on the actual number of days for each period presented.

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72



ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss arising from adverse changes in the fair value of financial instruments due to changes in interest rates, exchange rates, and equity prices. Interest rate risk is our primary market risk and is the result of repricing, basis, and option risk. A description and analysis of our interest rate risk management policies is included in Part II, Item 7A, "Quantitative and Qualitative Disclosures about Market Risk," in our 20182019 10-K.
We seek to achieve consistent growth in net interest income and net income while managing volatility that arises from shifts in interest rates. The Bank's Asset Liability Committee ("ALCO") oversees financial risk management by developing programs to measure and manage interest rate risks within authorized limits set by the Bank's Board of Directors. ALCO also approves the Bank's asset and liability management policies, oversees the formulation and implementation of strategies to improve balance sheet positioning and earnings, and reviews the Bank's interest rate sensitivity position. Management uses net interest income simulation modeling to analyze and capture exposure of earnings to changes in interest rates.
Net Interest Income Sensitivity
The analysis of net interest income sensitivity assesses the magnitude of changes in net interest income over a twelve-month measurement period resulting from immediate changes in interest rates using multiple rate scenarios. These scenarios include, but are not limited to, a flat or unchanged rate environment, immediate increases of 100, 200, and 300 basis points, and an immediate decrease of 100 and 200 basis points.
This simulation analysis is based on expected future cash flows and repricing characteristics for balance sheet and off-balance sheet instruments and incorporates market-based assumptions regarding the effect of changing interest rates on the prepayment rates of certain assets and liabilities. In addition, this sensitivity analysis examines assets and liabilities at the beginning of the measurement period and does not assume any changes from growth or business plans over the next twelve months. Interest-earning assets and interest-bearing liabilities are assumed to re-price based on contractual terms over the twelve-month measurement period assuming an instantaneous parallel shift in interest rates in effect at the beginning of the measurement period. The simulation analysis also incorporates assumptions based on the historical behavior of deposit rates in relation to interest rates. Because these assumptions are inherently uncertain, the simulation analysis cannot definitively measure net interest income or predict the impact of the fluctuation in interest rates on net interest income, but does provide an indication of the Company's sensitivity to changes in interest rates. Actual results may differ from simulated results due to the timing, magnitude, and frequency of interest rate changes as well as changes in market conditions and management strategies.
The Company's current simulation analysis indicates we would benefit from rising interest rates. Interest-earning assets consist of short and long-term products. Excluding non-accrual loans, and including the impact of hedging certain corporate variable rate loans using interest rate swaps through which the Company receives fixed amounts and pays variable amounts, 49%47% of the loan portfolio consisted of fixed rate loans and 51%53% were floating rate loans as of June 30, 2019, consistent with2020, compared to 49% and 51% at December 31, 2018.2019. See Note 1112 of "Notes to the Condensed Consolidated Financial Statements" in Part I, Item 1 of this Form 10-Q for additional detail regarding interest rate swaps.
As of June 30, 2019,2020, investments, consisting of securities and interest-bearing deposits in other banks, are more heavily weighted toward fixed rate securities at 96%85% of the total compared to 4%15% for floating rate interest-bearing deposits in other banks, consistent withcompared to 97% of the total compared to 3% for the floating rate interest-bearing deposits in other banks at December 31, 2018.2019. Fixed rate loans are most sensitive to the 3-5 year portion of the yield curve and the Company limits its loans with maturities that extend beyond 5 years. The majority of floating rate loans are indexed to the short-term LIBOR or Prime rates. The amount of floating rate loans with active interest rate floors was $608.0 million, or 8%, of the floating rate loan portfolio as of June 30, 2020 and was not meaningful as of June 30, 2019 or December 31, 2018.2019. On the liability side of the balance sheet, 78%85% and 77% of deposits as of June 30, 20192020 and December 31, 20182019 were demand deposits or interest-bearing core deposits, which either do not pay interest or the interest rates are expected to change at a slower pace than short-term interest rates.

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Table of Contents



Analysis of Net Interest Income Sensitivity
(Dollar amounts in thousands)
Immediate Change in Rates
 Immediate Change in Rates +300+200+100-100
 +300 +200 +100 -100 -200
As of June 30, 2019          
As of June 30, 2020As of June 30, 2020    
Dollar change $71,995
 $48,467
 $24,933
 $(31,153) $(69,494)Dollar change$135,337  $90,232  $45,205  $(21,147) 
Percent change 11.7% 7.9% 4.1% (5.1)% (14.6)%Percent change25.6 %17.0 %8.5 %(4.0)%
As of December 31, 2018          
As of December 31, 2019As of December 31, 2019    
Dollar change $86,602
 $57,888
 $28,573
 $(43,929) $(87,438)Dollar change$59,842  $40,687  $21,525  $(32,217) 
Percent change 15.3% 10.2% 5.0% (7.8)% (15.4)%Percent change10.3 %7.0 %3.7 %(5.6)%
The sensitivity of estimated net interest income to an instantaneous parallel shift in interest rates is reflected as both dollar and percentage changes. This table illustrates that an instantaneous 200100 basis point rise in interest rates as of June 30, 20192020 would increase net interest income by $48.5$45.2 million, or 7.9%8.5%, over the next twelve months compared to no change in interest rates. This same measure was $57.9$21.5 million, or 10.2%3.7%, as of December 31, 2018.2019.
Overall, interest rate risk volatility as of June 30, 20192020 compared to December 31, 20182019 was higher due to an increase in balance sheet liquidity and reduced funding needs, as well as the impact of recently declining market interest rates which limits our capacity to lower as a result of securities and loan purchases and the mix of interest-earning assets acquired in the Bridgeview transaction.interest-bearing deposit rates further.
ITEM 4. CONTROLS AND PROCEDURES
As of the end of the period covered by this report (the "Evaluation Date"), the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chairman of the Board and Chief Executive Officer and its Executive Vice President and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Based on that evaluation, the Chairman of the Board and Chief Executive Officer and Executive Vice President and Chief Financial Officer concluded that as of the Evaluation Date, the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms. There were no changes in the Company's internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the ordinary course of business, there were certain legal proceedings pending against the Company and its subsidiaries at June 30, 2019.2020. While the outcome of any legal proceeding is inherently uncertain, based on information currently available, the Company's management does not expect that any liabilities arising from pending legal matters will have a material adverse effect on the Company's business, financial condition, or results of operations, or cash flows.operations.
ITEM 1A. RISK FACTORS
We provide aA discussion of certain risks and uncertainties faced by the Company is provided in the section entitled "Risk Factors" in our 2018the Company's 2019 10-K. These risks and uncertainties are not exhaustive. Additional risks and uncertainties are discussed in the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this report, our 2018the 2019 10-K, and ourthe Company's other filings made with the SEC, as well as in other sections of such reports. The following risk factor represents material updates and additions to, and should be read together with, the risk factors previously disclosed in the 2019 10-K.

The Company's business, financial condition, liquidity, capital and results of operations have been, and will likely continue to be, adversely affected by the pandemic.
The pandemic has created economic and financial disruptions that have adversely affected, and are likely to continue to adversely affect, the Company's business, financial condition, liquidity, capital and results of operations. The extent to which the pandemic will continue to negatively affect the Company's business, financial condition, liquidity, capital and results of operations will depend on future developments, which are highly uncertain and cannot be predicted and many of which are outside of the Company's control, including the scope and duration of the pandemic, including the possibility of resurgence of
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after initial abatement, the continued effectiveness of the Company's business continuity plan including work-from-home arrangements and staffing in operational facilities, the direct and indirect impact of the pandemic on the Company's employees, clients, counterparties and service providers, as well as other market participants, and actions taken, or that may yet be taken, by governmental authorities and other third parties in response to the pandemic.
Among other things, the pandemic has contributed to, and is likely to continue to contribute to:
•Increased unemployment and decreased consumer and business confidence and economic activity, leading to an increased risk of loan delinquencies, defaults and foreclosures.
•Ratings downgrades, credit deterioration and defaults in many industries, including, but not limited to, hospitality, transportation and commercial real estate.
•A decrease in the rates and yields on U.S. Treasury securities, which may lead to further decreased net interest income.
•Volatility in financial and capital markets, interest rates and exchange rates.
•Significant draws on credit lines, including syndicated credit lines, as customers and clients seek to increase liquidity.
•Declines in collateral values.
•Increased demands on capital and liquidity, leading the Company to suspend purchases of its common stock in order to meet client needs.
•A reduction in the value of the assets that the Company manages or otherwise administers or services for others, affecting related fee income and demand for the Company's services.
•Heightened cybersecurity, information security and operational risks as cybercriminals attempt to profit from the disruption resulting from the pandemic given increased online and remote activity, including as a result of work-from-home arrangements.
•Disruptions to business operations at counterparties and service providers.
•Decreased demands for our products and services.
As a result, our credit, operational and other risks are generally expected to increase until the pandemic subsides.
In addition, our own business operations are at risk of disruption if significant portions of our workforce are unable to work effectively, including because of illness, quarantines, government actions, failures in systems or technology that disrupt work-from-home arrangements or other effects of the pandemic, or if we are unable to keep our branches open, including because of risk of infection. We have already taken action to reduce operating hours and lobby services at our branches.
Governmental authorities have taken unprecedented measures both to contain the spread of the pandemic, including shelter in place orders, business limitations and other shutdowns, which have severely restricted economic activity, and to provide economic assistance to individuals and businesses, stabilize the markets and support economic growth. The success of these measures is unknown and they may not be sufficient to fully mitigate the negative impact of the pandemic. Additionally, some measures, such as payment deferrals on mortgage and other loans, suspension of certain foreclosures, repossessions and other loan collection activity, continuation of certain fee assistance programs and other client accommodations may have a negative impact on the Company's business, financial condition, liquidity and results of operations. If such measures are not effective in mitigating the effects of the pandemic on our borrowers, or if such measures exacerbate the effects of the pandemic on our borrowers, we may also experience higher rates of default and increased credit losses in future periods. The Company also faces an increased risk of litigation and governmental and regulatory scrutiny as a result of the effects of the pandemic on market and economic conditions and actions governmental authorities take in response to those conditions. Furthermore, various government programs such as the Paycheck Protection Program are complex and our participation may lead to litigation and governmental, regulatory and third party scrutiny, negative publicity and damage to our reputation.
The length of the pandemic and the efficacy of the extraordinary measures being put in place to address it are unknown. There are no comparable recent events that provide guidance as to the economic recovery from the effects of the pandemic or the effect the spread of COVID-19 as a global pandemic may have. As a result of the pandemic, the Company has experienced and expects to continue to experience draws on lines of credit, reduced net interest income and net interest margin, reduced revenues in its fee-based businesses, and increased client defaults, including defaults on unsecured loans, resulting in overall declines in credit quality and higher credit loss expense. Even after the pandemic subsides, the U.S. economy may continue to experience a recession, and the Company anticipates that its businesses would be materially and adversely affected by a prolonged recession. To the extent the pandemic adversely affects the Company's business, financial condition, liquidity, capital or results of operations, it may also have the effect of heightening many of the other risks described in the section entitled "Risk Factors" in the 2019 10-K and the Company's other filings made with the SEC, as well as in other sections of those reports.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The Company announced a 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 repurchased $21.2 million of its common stock under the new program through June 30, 2019. The following table summarizes the Company’sCompany's monthly common stock repurchases during the second quarter of 2019.2020. On February 19, 2020, the Board approved a stock repurchase program, under which the Company is authorized to repurchase up to $200 million of its outstanding common stock through December 31, 2021. The Company suspended repurchases in March as it shifted its capital deployment strategy in response to the pandemic.
Issuer Purchases of Equity Securities
 
Total
Number
of Shares
Purchased(1)
Average
Price
Paid per
Share		Total Number
of Shares
Purchased as
Part of a
Publicly
Announced
Plan or
Program		Approximate Dollar Value of Shares that
May Yet Be
Purchased
Under the
Plan or
Program
April 1 - April 30, 2020366  $13.80  —  $188,458,427  
May 1 - May 31, 2020280  12.76  —  188,458,427  
June 1 - June 30, 2020359  14.77  —  188,458,427  
Total1,005  $13.86  —   

(1)Consists of shares acquired pursuant to the Company's Board-approved stock repurchase program and the Company's share-based compensation plans. Under the terms of the Company's share-based compensation plans, the Company accepts previously owned shares of common stock surrendered to satisfy tax withholding obligations associated with the vesting of restricted stock.
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Total
Number
of Shares
Purchased(1)
 
Average
Price
Paid per
Share
 
Dollar Value
of Shares
Purchased as
Part of a
Publicly
Announced
Plan or
Program
 
Approximate Dollar Value of Shares that
May Yet Be
Purchased
Under the
Plan or
Program
April 1 - April 30, 2019 2,370
 $21.51
 $—
 $180,000,000
May 1 - May 31, 2019 381,655
 20.21
 7,705,056
 172,294,944
June 1 - June 30, 2019 660,433
 20.43
 13,485,019
 158,809,925
Total 1,044,458
 $20.35
 $21,190,075
  

(1)
Consists of shares acquired pursuant to the Company's Board-approved stock repurchase program and the Company's share-based compensation plans. Under the terms of the Company's share-based compensation plans, the Company accepts previously owned shares of common stock surrendered to satisfy tax withholding obligations associated with the vesting of restricted stock.

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ITEM 6. EXHIBITS
Exhibit
Number		Description of Documents
Exhibit
Number3.1
DescriptionCertificate of Documents
Designations of the Company’s 7.000% Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series A, dated May 18, 2020, is incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 20, 2020.
113.2
Statement re: ComputationCertificate of Per Share Earnings – The computation of basic and diluted earnings per common share is included in Note 10Designations of the Company's NotesCompany’s 7.000% Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series C, dated June 23, 2020, is incorporated herein by reference to Exhibit 3.1 to the Condensed Consolidated Financial Statements included in "ITEM 1. FINANCIAL STATEMENTS" of this document.Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 24, 2020.
31.14.1
Deposit Agreement, dated May 20, 2020, among the Company, Computershare, Inc. and Computershare Trust Company, N.A., acting jointly as depositary, and the holders from time to time of the depositary receipts evidencing the depositary shares representing interests in the Company’s 7.000% Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series A, described therein is incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 20, 2020.
4.2
Form of depositary receipt evidencing the depositary shares representing interests in the Company’s 7.000% Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series A (included as Exhibit A to Exhibit 4.1).
4.3
Deposit Agreement, dated June 24, 2020, among the Company, Computershare, Inc. and Computershare Trust Company, N.A., acting jointly as depositary, and the holders from time to time of the depositary receipts evidencing the depositary shares representing interests in the Company’s 7.000% Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series C, described therein is incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 24, 2020.
4.4
Form of depositary receipt evidencing the depositary shares representing interests in the Company’s 7.000% Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series C (included as Exhibit A to Exhibit 4.3).
31.1
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1(1)
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2(1)
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS
101.INSXBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the inline XBRL document.
101.SCHInline XBRL Taxonomy Extension Schema Document
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document
101.LABInline XBRL Taxonomy Extension Label Linkbase Document
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document
104Cover Page Interactive Data File (formatted as inline XBRL and included in Exhibit 101)
(1)
(1)Furnished, not filed.
Furnished, not filed.

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

 
                         /s/ PATRICK S. BARRETT
                               Patrick S. Barrett

    Executive Vice President and Chief Financial Officer*
Date: August 7, 20196, 2020
* Duly authorized to sign on behalf of the registrant.

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