UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________

FORM 10-Q

(Mark One)

☒	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 2020
	or
☐	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _________ to __________.

Commission File Number 0-10967

______________________

(Exact name of registrant as specified in its charter)

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

8750 West Bryn Mawr Avenue, Suite 1300

Chicago, Illinois 60631-3655

(Address of principal executive offices) (zip code)

______________________

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

Securities registered pursuant to Section 12(b) of the Act:

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

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐.

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

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

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

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

As of May 5, 2020, there were 114,259,086 shares of common stock, $0.01 par value, outstanding.

FIRST MIDWEST BANCORP, INC.

FORM 10-Q

TABLE OF CONTENTS

		Page
Part I.	FINANCIAL INFORMATION
ITEM 1.	Financial Statements (Unaudited)
	Consolidated Statements of Financial Condition	3
	Condensed Consolidated Statements of Income	4
	Consolidated Statements of Comprehensive Income	5
	Consolidated Statements of Changes in Stockholders' Equity	6
	Consolidated Statements of Cash Flows	7
	Notes to the Condensed Consolidated Financial Statements	9
ITEM 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	40
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	70
ITEM 4.	Controls and Procedures	71
Part II.	OTHER INFORMATION
ITEM 1.	Legal Proceedings	71
ITEM 1A.	Risk Factors	71
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	73
ITEM 6.	Exhibits	74

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (Unaudited)

FIRST MIDWEST BANCORP, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Amounts in thousands, except per share data)

					March 31, 2020		December 31, 2019
Assets					(Unaudited)
Cash and due from banks					$	252,138	$	214,894
Interest-bearing deposits in other banks					229,474		84,327
Equity securities, at fair value					40,098		42,136
Securities available-for-sale, at fair value					3,382,865		2,873,386
Securities held-to-maturity, at amortized cost, net					19,825		21,997
Federal Home Loan Bank ("FHLB") and Federal Reserve Bank ("FRB") stock, at cost					154,357		115,409
Loans					13,965,017		12,840,330
Allowance for loan losses					(219,948)		(108,022)
Net loans					13,745,069		12,732,308
Other real estate owned ("OREO")					9,814		8,750
Premises, furniture, and equipment, net					145,844		147,996
Investment in bank-owned life insurance ("BOLI")					298,827		296,351
Goodwill and other intangible assets					935,241		875,262
Accrued interest receivable and other assets					539,748		437,581
Total assets					$	19,753,300	$	17,850,397
Liabilities
Noninterest-bearing deposits					$	4,222,523	$	3,802,422
Interest-bearing deposits					9,876,427		9,448,856
Total deposits					14,098,950		13,251,278
Borrowed funds					2,648,210		1,658,758
Senior and subordinated debt					234,153		233,948
Accrued interest payable and other liabilities					336,280		335,620
Total liabilities					17,317,593		15,479,604
Stockholders' Equity
Common stock					1,253		1,204
Additional paid-in capital					1,274,935		1,211,274
Retained earnings					1,357,395		1,380,612
Accumulated other comprehensive income (loss), net of tax					35,323		(1,954)
Treasury stock, at cost					(233,199)		(220,343)
Total stockholders' equity					2,435,707		2,370,793
Total liabilities and stockholders' equity					$	19,753,300	$	17,850,397
	March 31, 2020				December 31, 2019
	(Unaudited)
	Preferred		Common		Preferred		Common
	Shares		Shares		Shares		Shares
Par value per share	$	—	$	0.01	$	—	$	0.01
Shares authorized	1,000		250,000		1,000		250,000
Shares issued	—		125,349		—		120,415
Shares outstanding	—		114,213		—		109,972
Treasury shares	—		11,136		—		10,443

See accompanying unaudited notes to the condensed consolidated financial statements.

3

FIRST MIDWEST BANCORP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Amounts in thousands, except per share data)

(Unaudited)

	Quarters Ended   March 31,
	2020		2019
Interest Income
Loans	$	147,786	$	144,804
Investment securities	20,238		16,006
Other short-term investments	2,203		1,680
Total interest income	170,227		162,490
Interest Expense
Deposits	17,117		16,602
Borrowed funds	5,841		3,551
Senior and subordinated debt	3,694		3,313
Total interest expense	26,652		23,466
Net interest income	143,575		139,024
Provision for loan losses	39,532		10,444
Net interest income after provision for loan losses	104,043		128,580
Noninterest Income
Wealth management fees	12,361		11,600
Service charges on deposit accounts	11,781		11,540
Capital market products income	4,722		1,279
Card-based fees	3,968		4,378
Mortgage banking income	1,788		1,004
Other service charges, commissions, and fees	2,682		2,611
Net securities losses	(1,005)		—
Other income	3,065		2,494
Total noninterest income	39,362		34,906
Noninterest Expense
Salaries and employee benefits	62,859		57,373
Net occupancy and equipment expense	14,227		13,797
Professional services	10,390		7,087
Technology and related costs	8,548		6,270
Net OREO expense	420		681
Other expenses	15,415		12,953
Acquisition and integration related expenses	5,472		3,691
Delivering Excellence implementation costs	—		258
Total noninterest expense	117,331		102,110
Income before income tax expense	26,074		61,376
Income tax expense	6,468		15,318
Net income	$	19,606	$	46,058
Per Common Share Data
Basic earnings per common share	$	0.18	$	0.43
Diluted earnings per common share	$	0.18	$	0.43
Dividends declared per common share	$	0.14	$	0.12
Weighted-average common shares outstanding	109,922		105,770
Weighted-average diluted common shares outstanding	110,365		105,770

See accompanying unaudited notes to the condensed consolidated financial statements.

4

FIRST MIDWEST BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollar amounts in thousands)

(Unaudited)

	Quarters Ended   March 31,
	2020		2019
Net income	$	19,606	$	46,058
Securities Available-for-Sale
Unrealized holding gains:
Before tax	62,554		26,752
Tax effect	(17,297)		(7,451)
Net of tax	45,257		19,301
Reclassification of net losses included in net income:
Before tax	(1,005)		—
Tax effect	282		—
Net of tax	(723)		—
Net unrealized holding gains	44,534		19,301
Derivative Instruments
Unrealized holding (losses) gains:
Before tax	(10,040)		1,458
Tax effect	2,783		(406)
Net of tax	(7,257)		1,052
Total other comprehensive income	37,277		20,353
Total comprehensive income	$	56,883	$	66,411

	Accumulated Unrealized (Loss) Gain on Securities Available- for-Sale		Accumulated Unrealized (Loss) Gain on Derivative Instruments		Unrecognized Net Pension Costs		Total Accumulated Other Comprehensive Income (Loss)
Balance at December 31, 2018	$	(28,792)	$	(2,550)	$	(21,170)	$	(52,512)
Other comprehensive income	19,301		1,052		—		20,353
Balance at March 31, 2019	$	(9,491)	$	(1,498)	$	(21,170)	$	(32,159)
Balance at December 31, 2019	$	15,808	$	819	$	(18,581)	$	(1,954)
Other comprehensive income	44,534		(7,257)		—		37,277
Balance at March 31, 2020	$	60,342	$	(6,438)	$	(18,581)	$	35,323

See accompanying unaudited notes to the condensed consolidated financial statements.

5

FIRST MIDWEST BANCORP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(Amounts in thousands, except per share data)

(Unaudited)

	Common Shares Outstanding	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Total
As of December 31, 2018
Beginning balance	106,375	$	1,157	$	1,114,580	$	1,192,767	$	(52,512)	$	(200,994)	$	2,054,998
Adjustment to apply recent accounting   pronouncements(1)	—	—		—		47,257		—		—		47,257
Net income	—	—		—		46,058		—		—		46,058
Other comprehensive income	—	—		—		—		20,353		—		20,353
Common dividends declared ($0.12 per common share)	—	—		—		(12,837)		—		—		(12,837)
Acquisitions, net of issuance costs	150	—		(814)		—		—		4,098		3,284
Common stock issued	27	—		(137)		—		—		674		537
Restricted stock activity	352	—		(13,313)		—		—		9,538		(3,775)
Treasury stock issued to benefit plans	(4)	—		(4)		—		—		(79)		(83)
Share-based compensation expense	—	—		3,679		—		—		—		3,679
Balance at March 31, 2019	106,900	$	1,157	$	1,103,991	$	1,273,245	$	(32,159)	$	(186,763)	$	2,159,471
As of December 31, 2019
Beginning balance	109,972	$	1,204	$	1,211,274	$	1,380,612	$	(1,954)	$	(220,343)	$	2,370,793
Adjustment to apply recent accounting   pronouncements(2)	—	—		—		(26,821)		—		—		(26,821)
Net income	—	—		—		19,606		—		—		19,606
Other comprehensive income	—	—		—		—		37,277		—		37,277
Common dividends declared ($0.14 per common share)	—	—		—		(16,002)		—		—		(16,002)
Repurchases of common stock	(1,171)	—		—		—		—		(22,557)		(22,557)
Acquisition, net of issuance costs	4,930	49		71,834		—		—		—		71,883
Common stock issued	37	—		172		—		—		679		851
Restricted stock activity	449	—		(12,268)		—		—		9,102		(3,166)
Treasury stock issued to benefit plans	(4)	—		1		—		—		(80)		(79)
Share-based compensation expense	—	—		3,922		—		—		—		3,922
Balance at March 31, 2020	114,213	$	1,253	$	1,274,935	$	1,357,395	$	35,323	$	(233,199)	$	2,435,707

⁽¹⁾As a result of accounting guidance adopted in the first quarter of 2019, the remaining deferred gain on a sale-leaseback transaction was recognized as a cumulative-effect adjustment to retained earnings as of January 1, 2019.

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

See accompanying unaudited notes to the condensed consolidated financial statements.

6

FIRST MIDWEST BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollar amounts in thousands)

(Unaudited)

	Three Months Ended   March 31,
	2020		2019
Operating Activities
Net income	$	19,606	$	46,058
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	39,532		10,444
Depreciation of premises, furniture, and equipment	4,169		4,050
Net amortization of premium on securities	5,727		2,672
Net securities losses	1,005		—
Gains on sales of 1-4 family mortgages and corporate loans held-for-sale	(2,629)		(1,410)
Net losses (gains) on sales and valuation adjustments of OREO	128		(792)
Amortization of the FDIC indemnification asset	302		302
Net losses on sales and valuation adjustments of premises, furniture, and equipment	105		391
BOLI income	(1,982)		(1,826)
Share-based compensation expense	3,922		3,679
Tax benefit related to share-based compensation	62		55
Amortization of other intangible assets	2,770		2,363
Originations of mortgage loans held-for-sale	(104,694)		(62,895)
Proceeds from sales of mortgage loans held-for-sale	119,159		58,783
Net decrease (increase) in equity securities	2,038		(2,498)
Net (increase) decrease in accrued interest receivable and other assets	(114,028)		27,948
Net decrease in accrued interest payables and other liabilities	(40,870)		(37,870)
Net cash (used in) provided by operating activities	(65,678)		49,454
Investing Activities
Proceeds from maturities, repayments, and calls of securities available-for-sale	229,391		77,601
Proceeds from sales of securities available-for-sale	39,095		—
Purchases of securities available-for-sale	(586,292)		(131,707)
Proceeds from maturities, repayments, and calls of securities held-to-maturity	2,268		162
Purchases of securities held-to-maturity	(16)		(2,828)
Net purchases of FHLB stock	(38,948)		(5,488)
Net increase in loans	(373,138)		(131,221)
Premiums paid on BOLI, net of proceeds from claims	2,003		2,660
Proceeds from sales of OREO	230		2,795
Proceeds from sales of premises, furniture, and equipment	—		557
Purchases of premises, furniture, and equipment	(3,168)		(5,081)
Net cash received from (paid for) acquisition	142,282		(11,489)
Net cash used in investing activities	(586,293)		(204,039)
Financing Activities
Net (decrease) increase in deposit accounts	(102,404)		76,870
Net increase in borrowed funds	977,920		67,773
Repurchases of common stock	(22,557)		—
Cash dividends paid	(15,431)		(12,782)
Restricted stock activity	(3,166)		(3,775)
Net cash provided by financing activities	834,362		128,086
Net increase (decrease) in cash and cash equivalents	182,391		(26,499)
Cash and cash equivalents at beginning of period	299,221		289,258
Cash and cash equivalents at end of period	$	481,612	$	262,759

7

FIRST MIDWEST BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS – (Continued)

(Dollar amounts in thousands)

(Unaudited)

	Three Months Ended   March 31,
	2020		2019
Supplemental Disclosures of Cash Flow Information:
Income taxes paid	$	1,029	$	321
Interest paid to depositors and creditors	28,285		23,707
Dividends declared, but unpaid	15,854		12,728
Stock issued for acquisitions, net of issuance costs	71,883		3,284
Non-cash transfers of loans to OREO	121		—
Non-cash transfers of loans held-for-investment to loans held-for-sale	3,155		2,630
Non-cash recognition of right-of-use asset	—		143,561
Non-cash recognition of lease liability	—		143,561
See accompanying unaudited notes to the condensed consolidated financial statements.

8

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation – The accompanying unaudited condensed consolidated interim financial statements ("consolidated financial statements") of First Midwest Bancorp, Inc. (the "Company"), a Delaware corporation, were prepared in accordance with the rules and regulations of the Securities and Exchange Commission ("SEC") for quarterly reports on Form 10-Q and reflect all adjustments that management deems necessary for the fair presentation of the financial position and results of operations for the periods presented. The results of operations for the quarter ended March 31, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

The accounting and reporting policies of the Company and its subsidiaries conform to U.S. generally accepted accounting principles ("GAAP") and general practices within the banking industry. The accompanying consolidated financial statements do not include certain information and note disclosures required by GAAP for complete annual financial statements. Therefore, these financial statements should be read in conjunction with the Company's 2019 Annual Report on Form 10-K ("2019 10-K"). The Company uses the accrual basis of accounting for financial reporting purposes. Certain reclassifications were made to prior year amounts to conform to the current year presentation.

Use of Estimates – The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Although these estimates and assumptions are based on the best available information, actual results could differ from those estimates.

Principles of Consolidation – The accompanying consolidated financial statements include the financial position and results of operations of the Company and its subsidiaries after elimination of all significant intercompany accounts and transactions. Assets held in a fiduciary or agency capacity are not assets of the Company or its subsidiaries and are not included in the consolidated financial statements.

The accounting policies related to business combinations, loans, the allowance for credit losses, lease obligations, and derivative financial instruments are presented below. For a summary of all other significant accounting policies, see Note 1, "Summary of Significant Accounting Policies," in the Company's 2019 10-K.

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

Allowance for Securities Held-to-Maturity – The Company maintains an allowance for securities held-to-maturity for the risk of loss inherent in these financial assets, which reflects the difference between the carrying value and the discounted expected future cash flows of these assets and is included in securities held-to-maturity, at amortized cost, net in the Consolidated Statements of Financial Condition.

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

Acquired Loans – Acquired loans consist of all loans that were acquired in business combinations, including loans which are covered by Federal Deposit Insurance Corporation ("FDIC") Agreements. Acquired loans are included within loans held-for-investment.

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

9

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

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

PCD loans are generally accounted for based on estimates of expected future cash flows. The Company uses a discounted cash flow analysis involving significant unobservable inputs and assumptions to measure the fair value of PCD loans. The significant assumptions utilized in the cash flow analysis include the probability of default ("PD"), loss given default ("LGD"), and discount rate. PCD loans are recorded at fair value, excluding credit-related adjustments, for which an allowance for loan losses is established at the acquisition date through purchase accounting adjustments. Expected future cash flows in excess of the fair value of loans at the purchase date ("accretable yield") are recorded as interest income over the life of the loans if the timing and amount of the expected future cash flows can be reasonably estimated. Subsequent to the acquisition date, the allowance for loan losses on PCD loans is estimated as are the allowances for all other loans in the portfolio.

Prior to the adoption of the current expected credit losses ("CECL") accounting guidance on January 1, 2020, acquired loans were separated into (i) non-purchased credit impaired ("non-PCI") loans and (ii) purchased credit impaired ("PCI") loans. The significant accounting policies related to non-PCI and PCI acquired loans are presented in Note 1, "Summary of Significant Accounting Policies" to the Consolidated Financial Statements in the Company's 2019 10-K.

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

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

Non-accrual loans with balances under a specified threshold are not individually evaluated for impairment. For all other non-accrual loans, impairment is measured by comparing the estimated value of the loan to the recorded book value. The value of collateral-dependent loans is based on the fair value of the underlying collateral, less costs to sell. The value of other loans is measured using the present value of expected future cash flows discounted at the loan's effective interest rate.

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

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

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

10

Allowance for Credit Losses – The allowance for credit losses is comprised of the allowance for loan losses and the allowance for unfunded commitments and is maintained by management at a level believed adequate to absorb current expected credit losses in the existing loan portfolio. Determination of the allowance for credit losses is subjective since it requires significant estimates and management judgment, including the amounts and timing of expected future cash flows, actual loss experience, consideration of current national, regional, and local economic trends and conditions, reasonable and supportable forecasts about the future, changes in interest rates and property values, various internal and external qualitative factors, and other factors.

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

Allowance for Loan Losses – The allowance for loan losses consists of (i) specific allowance for individual loans where the recorded investment exceeds the value, (ii) an allowance based on historical credit loss experience with consideration of reasonable and supportable forecasts of economic conditions for each loan category, and (iii) an allowance based on other internal and external qualitative factors.

The allowance for individual loans is based on a periodic analysis of non-accrual loans individually exceeding a specific dollar amount. If the estimated value of a non-accrual loan is less than its recorded book value, the Company either (i) provides an allowance in the amount of the excess of the book value over the estimated value of the related loan or, (ii) if the loss is confirmed, charges off the loss.

The allowance by loan category is based on a discounted cash flows analysis as future cash flows are discounted at an effective rate of return. In addition, estimates of losses on future cash flows is forecasted by applying probability of default and loss given default factors as well as prepayment and curtailment assumptions to cash flows that are adjusted to a present value. This discounted cash flow analysis is updated quarterly, primarily using actual loss experience adjusted for current reasonable and supportable forecasts of economic conditions over a one-year forecast period. After the one-year forecast period, a one-year reversion period adjusts loss experience to the historical average on a straight-line basis. These forecasts consider multiple scenarios of key assumptions including national unemployment rates, housing price indices, and gross domestic product.

This general allowance component is then adjusted based on management's consideration of many internal and external qualitative factors, including:

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

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

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

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

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

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

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

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

The allowance for loan losses also includes an allowance on acquired non-PCD and PCD loans. An allowance for loan losses is recorded on acquired PCD loans at the acquisition date through purchase accounting adjustments. Subsequent to the acquisition date, the allowance for loan losses on PCD loans is estimated as are the allowances for all other loans in the portfolio. No allowance for loan losses is recorded on acquired non-PCD loans at the acquisition date through purchase accounting. Instead, an allowance is established on acquired non-PCD loans at the acquisition date in-line with all other loans in the portfolio as if the loans were originated at the acquisition date. On a periodic basis, the adequacy of this allowance is determined using either a PD/LGD methodology or a specific review methodology.

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

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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 information available, the adequacy of the allowance for credit losses depends on a variety of factors beyond the Company's control, including the performance of its loan portfolio, current national, regional, and local economic trends, reasonable and supportable forecasts about the future, changes in interest rates and property values, the amounts and timing of expected future cash flows on non-accrual loans, estimated losses on pools of homogenous loans, the interpretation of loan risk classifications by regulatory authorities, various internal and external qualitative factors, and other factors.

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

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

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

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

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

2. RECENT ACCOUNTING PRONOUNCEMENTS AND OTHER GUIDANCE

Adopted Accounting Pronouncements

Measurement of Credit Losses on Financial Instruments: In June of 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") 2016-13 that requires entities to present financial assets measured at amortized cost at the net amount expected to be collected, considering an entity's current estimate of all expected credit losses. In addition, credit losses relating to available-for-sale debt securities are required to be recorded through an allowance for credit losses, with changes in credit loss estimates recognized through current earnings. This guidance is effective for annual and interim periods beginning after December 15, 2019.

The Company adopted this guidance on January 1, 2020, which resulted in the recognition of $76.0 million of allowance for credit losses which includes $26.0 million attributable to loans, $5.6 million attributable to unfunded commitments, $35.7 million attributable to PCD loans, $8.5 million attributable to non-PCD acquired loans, and $220,000 attributable to securities held-to-maturity. The portion of the allowance for credit losses attributable to PCD loans did not have an impact on equity as the credit-related portion of acquisition adjustments on loans previously classified as PCI transitioned to PCD accounting treatment upon adoption. The amount of allowance for credit losses recognized upon adoption was based on the composition of the loan portfolio, as well as the economic conditions and forecasts as of the adoption date. The Company adopted this guidance using the modified retrospective approach which resulted in the recognition of a $26.8 million after-tax

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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. The adoption of this guidance on January 1, 2020 did not materially impact the Company's financial condition, results of operations, or liquidity.

Changes to the Disclosure Requirements for Fair Value Measurement: In August of 2018, the FASB issued ASU 2018-13 that eliminates, modifies, and adds to certain fair value measurement disclosure requirements associated with the three-tiered fair value hierarchy. This guidance is effective for annual and interim periods beginning after December 15, 2019. The adoption of this guidance on January 1, 2020 did not materially impact the Company's financial condition, results of operations, or liquidity.

Loan Modifications Due to COVID-19: In March of 2020, the CARES Act was enacted by the U.S. government in response to the economic disruption caused by the COVID-19 pandemic. The Company's banking regulators issued a statement titled the "Interagency Statement on Loan Modifications by Financial Institutions Working with Customers Affected by the Coronavirus" that encourages financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations due to the effects of COVID-19. Additionally, the CARES Act provides that a qualified loan modification is exempt by law from classification as a TDR as defined by GAAP, from the period beginning March 1, 2020 until the earlier of December 31, 2020 or the date that is 60 days after the date on which the national emergency concerning the COVID-19 pandemic declared by the President of the United States terminates. Accordingly, the Company is offering short-term modifications made in response to COVID-19 to borrowers who are current and otherwise not past due. These include short-term modifications in the form of payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. The modifications completed in the three months ended March 31, 2020 were immaterial.

Regulatory Capital Delay of CECL Impact: In February of 2019, the federal bank regulatory agencies issued a final rule, the 2019 CECL Rule, that revised certain capital regulations to account for changes to credit loss accounting under U.S. GAAP. The 2019 CECL Rule included a transition option that allows banking organizations to phase in, over a three-year period, the day-one adverse effects of CECL on their regulatory capital ratios (three-year transition option). In March of 2020, the federal bank regulatory agencies issued an interim final rule that maintains the three year transition option of the 2019 CECL Rule and also provides banking organizations that were required under GAAP (as of January 2020) to implement CECL before the end of 2020 the option to delay for two years an estimate of the effect of CECL on regulatory capital, relative to the incurred loss methodology's effect on regulatory capital, followed by a three-year transition period (five-year transition option). The Company elected to adopt the five-year transition option. This election of the transition option is applicable only to regulatory capital computations under federal banking regulations and does not otherwise impact the financial statements prepared in accordance with GAAP.

Accounting Pronouncements Pending Adoption

Changes to the Disclosure Requirements for Defined Benefit Plans: In August of 2018, the FASB issued ASU 2018-14 that makes minor changes and clarifications to the disclosure requirements for entities that sponsor defined benefit plans. This guidance is effective for annual and interim periods beginning after December 15, 2020. Early adoption is permitted.

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

Income Taxes: In December of 2019, the FASB issued ASU 2019-12 that removes certain exceptions to the general principles of accounting for income taxes. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted. Management does not expect the adoption of this guidance will materially impact the Company's financial condition, results of operations, or liquidity.

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

3. ACQUISITIONS

Completed Acquisitions

Park Bank

On March 9, 2020, the Company completed its acquisition of Bankmanagers Corp. ("Bankmanagers"), the holding company for Park Bank, based in Milwaukee Wisconsin. At closing, the Company acquired $1.2 billion of assets, $1.0 billion of deposits, and $691.7 million of loans, net of fair value adjustments. Under the terms of the merger agreement, on March 9, 2020, each outstanding share of Bankmanagers common stock was exchanged for 29.9675 shares of Company common stock, plus $623.02 of cash (of which $346.00 per share was paid by Bankmanagers to its shareholders by a special cash dividend immediately prior to closing). This resulted in merger consideration of $174.4 million, which consisted of 4.9 million shares of Company common stock and $102.5 million of cash. Goodwill of $57.2 million associated with the acquisition was recorded by the Company. Park Bank will be merged into First Midwest Bank and all operating systems are expected to be converted to the Company's operating platform in the second quarter of 2020. The fair value adjustments, including goodwill, associated with the transaction remain preliminary and may change as the Company continues to finalize the fair value of the assets and liabilities acquired.

Bridgeview Bank Group

On May 9, 2019, the Company completed its acquisition of Bridgeview Bancorp, Inc. ("Bridgeview"), the holding company for Bridgeview Bank Group. At closing, the Company acquired $1.2 billion of assets, $1.0 billion of deposits, and $710.3 million of loans, net of fair value adjustments. Under the terms of the merger agreement, on May 9, 2019, each outstanding share of Bridgeview common stock was exchanged for 0.2767 shares of Company common stock, plus $1.66 of cash. In addition, each outstanding Bridgeview stock option was exchanged for the right to receive cash. This resulted in merger consideration of $135.4 million, which consisted of 4.7 million shares of Company common stock and $37.1 million of cash. Goodwill of $60.7 million associated with the acquisition was recorded by the Company. All Bridgeview operating systems were converted to the Company's operating platform during the second quarter of 2019. The fair value adjustments, including goodwill, associated with this transaction remain preliminary and may change as the Company continues to finalize the fair value of the assets and liabilities acquired.

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

Northern Oak Wealth Management, Inc.

On January 16, 2019, the Company completed its acquisition of Northern Oak Wealth Management, Inc., a registered investment adviser based in Milwaukee, Wisconsin with approximately $800.0 million of assets under management at closing. During the first quarter of 2020, the Company finalized the fair value adjustments associated with the Northern Oak transaction, which required a measurement period adjustment to goodwill. This adjustment was recognized in the current period in accordance with accounting guidance applicable to business combinations.

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The following table presents the assets acquired and liabilities assumed, net of the fair value adjustments, in the Park Bank and Bridgeview transactions as of the acquisition date. The assets acquired and liabilities assumed, both intangible and tangible, were recorded at their estimated fair values as of the acquisition date and have been accounted for under the acquisition method of accounting.

Acquisition Activity

(Dollar amounts in thousands, except share and per share data)

	Park Bank		Bridgeview
	March 9, 2020		May 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-sale	136,856		263,090
Securities held-to-maturity	300		13,426
FHLB and FRB stock	—		1,481
Loans	691,667		710,302
OREO	1,868		5,436
Goodwill	57,174		60,729
Other intangible assets	3,068		15,603
Premises, furniture, and equipment	2,759		15,905
Accrued interest receivable and other assets	11,891		37,098
Total assets	$	1,150,364	$	1,165,133
Liabilities
Noninterest-bearing deposits	$	356,050	$	179,267
Interest-bearing deposits	594,026		807,487
Total deposits	950,076		986,754
Borrowed funds	11,532		1,746
Senior and subordinated debt	—		29,360
Accrued interest payable and other liabilities	14,374		11,921
Total liabilities	975,982		1,029,781
Consideration Paid
Common stock (2020 – 4,930,231, shares issued at $14.58 per share, 2019 –   4,728,541, shares issued at $20.77 per share), net of issuance costs	71,883		98,212
Cash paid	102,499		37,140
Total consideration paid	174,382		135,352
	$	1,150,364	$	1,165,133

Expenses related to the acquisition and integration of completed and pending transactions totaled $5.5 million and $3.7 million during the quarters ended March 31, 2020 and 2019, respectively, and are reported as a separate component within noninterest expense in the Condensed Consolidated Statements of Income.

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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 2019 10-K.

A summary of the Company's securities portfolio by category and maturity is presented in the following tables.

Securities Portfolio

(Dollar amounts in thousands)

	As of March 31, 2020								As of December 31, 2019
	Amortized Cost		Gross Unrealized				Fair Value		Amortized Cost		Gross Unrealized				Fair Value
			Gains		Losses						Gains		Losses
Securities Available-for-Sale
U.S. treasury securities	$	32,954	$	355	$	—	$	33,309	$	33,939	$	137	$	(1)	$	34,075
U.S. agency securities	616,469		3,940		(2,417)		617,992		249,502		758		(1,836)		248,424
Collateralized mortgage obligations ("CMOs")	1,640,928		59,820		(736)		1,700,012		1,547,805		14,893		(5,027)		1,557,671
Other mortgage-backed securities ("MBSs")	662,529		24,836		(94)		687,271		678,804		7,728		(1,848)		684,684
Municipal securities	228,744		5,972		(157)		234,559		228,632		5,898		(99)		234,431
Corporate debt securities	117,785		394		(8,457)		109,722		112,797		1,791		(487)		114,101
Total securities available-for-sale	$	3,299,409	$	95,317	$	(11,861)	$	3,382,865	$	2,851,479	$	31,205	$	(9,298)	$	2,873,386
Securities Held-to-Maturity
Municipal securities	$	20,045	$	17	$	—	$	20,062	$	21,997	$	—	$	(763)	$	21,234
Allowance for securities held-to-   maturity(1)	(220)						$	(220)
Total securities held-to-maturity, net	$	19,825	$	17	$	—	$	19,842
Equity Securities							$	40,098							$	42,136

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

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

Accounting guidance requires that the credit portion of a decline in fair value be recognized as an allowance for credit losses, established as a charge to expense through income. If a decline in fair value below carrying value is not attributable to credit deterioration and the Company does not intend to sell the security or believe it would not be more likely than not required to sell the security prior to recovery, the Company records the non-credit related portion of the decline in fair value in other comprehensive income (loss). In determining whether a decline in fair value of a security is credit related, the Company considers adverse conditions specific to the security, deterioration in economic conditions or market environment that may affect the value of the securities and related collateral, if any, events of default, changes to the credit rating of the security by a rating agency, and guarantees applicable to the security, among other factors.

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Remaining Contractual Maturity of Securities

(Dollar amounts in thousands)

	As of March 31, 2020
	Available-for-Sale				Held-to-Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
One year or less	$	326,292	$	326,171	$	8,111	$	8,118
After one year to five years	178,785		178,718		5,573		5,578
After five years to ten years	490,875		490,693		3,349		3,352
After ten years	—		—		2,792		2,794
Securities that do not have a single contractual maturity date	2,303,457		2,387,283		—		—
Total	$	3,299,409	$	3,382,865	$	19,825	$	19,842

The carrying value of securities available-for-sale that were pledged to secure deposits or for other purposes as permitted or required by law totaled $1.4 billion as of March 31, 2020 and $1.3 billion as of December 31, 2019. No securities held-to-maturity were pledged as of March 31, 2020 or December 31, 2019.

There were realized losses of $1.0 million and no realized gains (losses) on securities available-for-sale for the quarters ended March 31, 2020 and 2019, respectively.

The following table presents the aggregate amount of unrealized losses and the aggregate related fair values of securities with unrealized losses as of March 31, 2020 and December 31, 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 March 31, 2020
Securities Available-for-Sale
U.S. agency securities	24	$	164,368	$	2,177	$	15,635	$	240	$	180,003	$	2,417
CMOs	12	27,840		422		17,505		314		45,345		736
MBSs	11	4,809		70		6,294		24		11,103		94
Municipal securities	22	6,607		148		5,510		9		12,117		157
Corporate debt securities	11	9,615		385		76,384		8,072		85,999		8,457
Total	80	$	213,239	$	3,202	$	121,328	$	8,659	$	334,567	$	11,861
As of December 31, 2019
Securities Available-for-Sale
U.S. treasury securities	5	$	4,966	$	1	$	—	$	—	$	4,966	$	1
U.S. agency securities	52	97,729		1,200		49,387		636		147,116		1,836
CMOs	148	187,470		2,177		412,083		2,850		599,553		5,027
MBSs	59	66,340		996		121,861		852		188,201		1,848
Municipal securities	16	9,384		89		3,104		10		12,488		99
Corporate debt securities	6	9,719		281		21,955		206		31,674		487
Total	286	$	375,608	$	4,744	$	608,390	$	4,554	$	983,998	$	9,298

Substantially all of the Company's CMOs and other MBSs are either backed by U.S. government-owned agencies or issued by U.S. government-sponsored enterprises. Municipal securities are issued by municipal authorities, and the majority are supported by third-party insurance or some other form of credit enhancement. Management does not believe any of these securities with unrealized losses as of March 31, 2020 represent impairment related to credit deterioration. These unrealized losses are attributed to changes in interest rates and temporary market movements. The Company does not intend to sell these securities 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
	March 31, 2020		December 31, 2019
Commercial and industrial	$	5,051,154	$	4,481,525
Agricultural	393,138		405,616
Commercial real estate:
Office, retail, and industrial	2,279,068		1,848,718
Multi-family	906,281		856,553
Construction	562,689		593,093
Other commercial real estate	1,349,812		1,383,708
Total commercial real estate	5,097,850		4,682,072
Total corporate loans	10,542,142		9,569,213
Home equity	965,771		851,454
1-4 family mortgages	1,968,589		1,927,078
Installment	488,515		492,585
Total consumer loans	3,422,875		3,271,117
Total loans	$	13,965,017	$	12,840,330
Deferred loan fees included in total loans	$	8,264	$	7,972
Overdrawn demand deposits included in total loans	7,126		10,675

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

The Company primarily lends to community-based and mid-sized businesses, commercial real estate customers, and consumers in its markets. Within these areas, the Company diversifies its loan portfolio by loan type, industry, and borrower.

It is the Company's policy to review each prospective credit to determine the appropriateness and the adequacy of security or collateral prior to making a loan. In the event of borrower default, the Company seeks recovery in compliance with state lending laws, the Company's lending standards, and credit monitoring and remediation procedures. A discussion of risk characteristics relevant to each portfolio segment is presented in Note 5, "Loans" to the Consolidated Financial Statements in the Company's 2019 10-K.

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Loan Sales

The following table presents loan sales and purchases for the quarters ended March 31, 2020 and 2019.

Loan Sales and Purchases

(Dollar amounts in thousands)

	Quarters Ended   March 31,
	2020		2019
Corporate loan sales
Proceeds from sales	$	4,303	$	3,198
Less book value of loans sold	4,188		3,116
Net gains on corporate loan sales(1)	115		82
1-4 family mortgage loan sales
Proceeds from sales	119,159		58,783
Less book value of loans sold	116,645		57,455
Net gains on 1-4 family mortgage loan sales(2)	2,514		1,328
Total net gains on loan sales	$	2,629	$	1,410
Corporate loan purchases(3)
Commercial and industrial	$	145,822	$	52,719
Construction	639		834
Other commercial real estate	—		3,986
Total corporate loan purchases	$	146,461	$	57,539
Consumer loan purchases
Home equity	$	144,967	$	38,252
1-4 family mortgages	70,175		72,930
Total consumer loan purchases	$	215,142	$	111,182

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

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

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

The Company retained servicing responsibilities for a portion of the 1-4 family mortgage loans sold and collects servicing fees equal to a percentage of the outstanding principal balance. For additional disclosure related to the Company's obligations resulting from the sale of certain 1-4 family mortgage loans, see Note 13, "Commitments, Guarantees, and Contingent Liabilities."

6. ACQUIRED LOANS

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

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

Acquired Loans⁽¹⁾⁽²⁾

(Dollar amounts in thousands)

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

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

⁽²⁾Prior to the adoption of CECL on January 1, 2020, loans that had evidence of credit deterioration since origination and for which it was probable at acquisition that the Company would not collect all contractually required principal and interest payments were classified as PCI.

The outstanding balance of PCD loans was $315.5 million as of March 31, 2020 and the outstanding balance of PCI loans was $243.0 million as of December 31, 2019.

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

7. PAST DUE LOANS, ALLOWANCE FOR CREDIT LOSSES, NON-ACCRUAL LOANS, AND TDRS

Past Due and Non-accrual Loans

The following table presents an aging analysis of the Company's past due loans as of March 31, 2020 and December 31, 2019 with balances presented on an amortized cost basis. The aging is determined without regard to accrual status. The table also presents non-performing loans, consisting of non-accrual loans (the majority of which are past due) and loans 90 days or more past due and still accruing interest, as of each balance sheet date.

Aging Analysis of Past Due Loans and Non-performing Loans by Class⁽¹⁾

(Dollar amounts in thousands)

	Aging Analysis (Accruing and Non-accrual)										Non-performing Loans
	Current		30-89 Days Past Due		90 Days or More Past Due		Total Past Due		Total Loans		Non- accrual		90 Days or More Past Due, Still Accruing Interest
As of March 31, 2020
Commercial and industrial	$	5,005,589	$	23,166	$	22,399	$	45,565	$	5,051,154	$	34,012	$	2,912
Agricultural	382,440		5,420		5,278		10,698		393,138		5,823		146
Commercial real estate:
Office, retail, and industrial	2,229,685		16,590		32,793		49,383		2,279,068		44,625		—
Multi-family	897,392		5,697		3,192		8,889		906,281		2,869		558
Construction	532,427		1,342		28,920		30,262		562,689		28,920		—
Other commercial real estate	1,320,169		25,052		4,591		29,643		1,349,812		11,851		22
Total commercial real estate	4,979,673		48,681		69,496		118,177		5,097,850		88,265		580
Total corporate loans	10,367,702		77,267		97,173		174,440		10,542,142		128,100		3,638
Home equity	956,764		4,548		4,459		9,007		965,771		9,503		360
1-4 family mortgages	1,957,289		5,314		5,986		11,300		1,968,589		8,996		—
Installment	483,504		3,957		1,054		5,011		488,515		—		1,054
Total consumer loans	3,397,557		13,819		11,499		25,318		3,422,875		18,499		1,414
Total loans	$	13,765,259	$	91,086	$	108,672	$	199,758	$	13,965,017	$	146,599	$	5,052
As of December 31, 2019
Commercial and industrial	$	4,455,381	$	11,468	$	14,676	$	26,144	$	4,481,525	$	29,995	$	2,207
Agricultural	398,676		850		6,090		6,940		405,616		5,954		358
Commercial real estate:
Office, retail, and industrial	1,830,321		2,943		15,454		18,397		1,848,718		25,857		546
Multi-family	853,762		211		2,580		2,791		856,553		2,697		—
Construction	588,065		4,876		152		5,028		593,093		152		—
Other commercial real estate	1,377,678		3,233		2,797		6,030		1,383,708		4,729		529
Total commercial real estate	4,649,826		11,263		20,983		32,246		4,682,072		33,435		1,075
Total corporate loans	9,503,883		23,581		41,749		65,330		9,569,213		69,384		3,640
Home equity	841,908		4,992		4,554		9,546		851,454		8,443		146
1-4 family mortgages	1,917,648		5,452		3,978		9,430		1,927,078		4,442		1,203
Installment	491,406		1,167		12		1,179		492,585		—		12
Total consumer loans	3,250,962		11,611		8,544		20,155		3,271,117		12,885		1,361
Total loans	$	12,754,845	$	35,192	$	50,293	$	85,485	$	12,840,330	$	82,269	$	5,001

⁽¹⁾ Prior to the adoption of CECL on January 1, 2020, PCI loans with an accretable yield were considered current and were not included in past due loan totals. In addition, PCI loans with an accretable yield were excluded from non-accrual loans. Subsequent to adoption, PCD loans, including those previously classified as PCI, are included in past due and non-accrual loan totals. In addition, an allowance for credit losses is established as of the acquisition date or upon the adoption of CECL for loans previously classified as PCI, as PCD loans are no longer recorded net of a credit-related acquisition adjustment.

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Allowance for Credit Losses

The Company maintains an allowance for credit losses at a level deemed adequate by management to absorb estimated losses inherent in the existing loan portfolio. See Note 1, "Summary of Significant Accounting Policies," for the accounting policy for the allowance for credit losses. A rollforward of the allowance for credit losses by portfolio segment for the quarters ended March 31, 2020 and 2019 is presented in the table below.

Allowance for Credit Losses by Portfolio Segment

(Dollar amounts in thousands)

	Commercial, Industrial, and Agricultural		Office, Retail, and Industrial		Multi- family		Construction		Other Commercial Real Estate		Consumer		Allowance for Unfunded Commitments		Total Allowance for Credit Losses
Quarter Ended March 31, 2020
Beginning balance	$	62,830	$	7,580	$	2,950	$	1,697	$	6,408	$	26,557	$	1,200	$	109,222
Adjustment to apply   recent accounting   pronouncements(1)	20,159		11,686		397		10,300		11,427		16,235		5,553		75,757
Allowance established for acquired PCD loans	12,262		2,003		—		—		—		39		—		14,304
Charge-offs	(7,066)		(338)		(10)		(1,808)		(308)		(4,400)		—		(13,930)
Recoveries	1,159		9		5		—		144		499		—		1,816
Net charge-offs	(5,907)		(329)		(5)		(1,808)		(164)		(3,901)		—		(12,114)
Provision for loan losses and other	24,389		4,916		347		1,108		883		7,889		—		39,532
Ending balance	$	113,733	$	25,856	$	3,689	$	11,297	$	18,554	$	46,819	$	6,753	$	226,701
Quarter Ended March 31, 2019
Beginning balance	$	63,276	$	7,900	$	2,464	$	2,173	$	4,934	$	21,472	$	1,200	$	103,419
Charge-offs	(6,451)		(628)		(340)		(6)		(210)		(3,142)		—		(10,777)
Recoveries	1,301		10		1		6		21		354		—		1,693
Net charge-offs	(5,150)		(618)		(339)		—		(189)		(2,788)		—		(9,084)
Provision for loan losses and other	6,559		397		91		(42)		185		3,254		—		10,444
Ending balance	$	64,685	$	7,679	$	2,216	$	2,131	$	4,930	$	21,938	$	1,200	$	104,779

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

The allowance for credit losses increased from December 31, 2019 primarily due to the adoption of CECL and the estimated impact of the COVID-19 pandemic on the allowance for credit losses, which considers multiple macroeconomic scenarios of stressed GDP, unemployment, and housing price index, detailed portfolio reviews of elevated risk sectors, and the effects of governmental responses to the COVID-19 pandemic.

21

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

Loans and Related Allowance for Credit Losses by Portfolio Segment

(Dollar amounts in thousands)

	Loans								Allowance for Credit Losses
	Individually Evaluated		Collectively Evaluated		PCD/PCI(1)		Total		Individually Evaluated		Collectively Evaluated		PCD/PCI(1)		Total
As of March 31, 2020
Commercial, industrial, and   agricultural	$	28,682	$	5,299,373	$	116,237	$	5,444,292	$	1,821	$	91,604	$	20,308	$	113,733
Commercial real estate:
Office, retail, and industrial	25,092		2,192,942		61,034		2,279,068		986		13,257		11,613		25,856
Multi-family	2,338		900,583		3,360		906,281		—		3,642		47		3,689
Construction	18,734		522,832		21,123		562,689		—		3,678		7,619		11,297
Other commercial real estate	3,467		1,297,591		48,754		1,349,812		—		8,422		10,132		18,554
Total commercial real estate	49,631		4,913,948		134,271		5,097,850		986		28,999		29,411		59,396
Total corporate loans	78,313		10,213,321		250,508		10,542,142		2,807		120,603		49,719		173,129
Consumer	—		3,398,211		24,664		3,422,875		—		46,315		504		46,819
Allowance for unfunded commitments	—		—		—		—		—		6,753		—		6,753
Total loans	$	78,313	$	13,611,532	$	275,172	$	13,965,017	$	2,807	$	173,671	$	50,223	$	226,701
As of December 31, 2019
Commercial, industrial, and   agricultural	$	34,142	$	4,807,114	$	45,885	$	4,887,141	$	3,414	$	59,108	$	308	$	62,830
Commercial real estate:
Office, retail, and industrial	24,820		1,795,557		28,341		1,848,718		578		6,899		103		7,580
Multi-family	1,995		851,857		2,701		856,553		—		2,854		96		2,950
Construction	123		581,747		11,223		593,093		—		1,681		16		1,697
Other commercial real estate	3,241		1,323,635		56,832		1,383,708		—		4,867		1,541		6,408
Total commercial real estate	30,179		4,552,796		99,097		4,682,072		578		16,301		1,756		18,635
Total corporate loans	64,321		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

⁽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.

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

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

(Dollar amounts in thousands)

	Type of Collateral						Non-accrual Loans With No Related Allowance
	Real Estate		Blanket Lien		Equipment
Commercial and industrial	$	7,292	$	60,475	$	2,055	$	9,497
Agricultural	4,755		2,043		—		5,610
Commercial real estate:
Office, retail, and industrial	55,176		—		—		17,674
Multi-family	2,338		—		—		2,338
Construction	29,502		—		—		19,185
Other commercial real estate	27,589		—		—		9,310
Total commercial real estate	114,605		—		—		48,507
Total corporate loans	126,652		62,518		2,055		63,614
Home equity	1,506		—		—		266
1-4 family mortgages	96		—		—		1,942
Installment	—		—		—		—
Total consumer loans	1,602		—		—		2,208
Total loans	$	128,254	$	62,518	$	2,055	$	65,822

Loans Individually Evaluated

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

Loans Individually Evaluated by Class

(Dollar amounts in thousands)

	As of March 31, 2020								As of December 31, 2019
	Recorded Investment In								Recorded Investment In
	Loans with No Specific Allowance		Loans with a Specific Allowance		Unpaid Principal Balance		Specific Allowance		Loans with No Specific Allowance		Loans with a Specific Allowance		Unpaid Principal Balance		Specific Allowance
Commercial and industrial	$	6,876	$	16,196	$	47,302	$	1,821	$	12,885	$	15,516	$	52,559	$	2,456
Agricultural	5,610		—		10,389		—		1,889		3,852		9,293		958
Commercial real estate:
Office, retail, and industrial	14,250		10,842		37,317		986		14,111		10,709		37,007		578
Multi-family	2,338		—		2,338		—		1,995		—		1,995		—
Construction	18,734		—		18,734		—		123		—		123		—
Other commercial real estate	3,467		—		3,755		—		3,241		—		3,495		—
Total commercial real estate	38,789		10,842		62,144		986		19,470		10,709		42,620		578
Total non-accrual loans individually evaluated	$	51,275	$	27,038	$	119,835	$	2,807	$	34,244	$	30,077	$	104,472	$	3,992

Interest income recognized on non-accrual loans using the cash basis of accounting totaled $278,000 and $79,000 for the quarters ended March 31, 2020 and 2019, respectively.

Credit Quality Indicators

Corporate loans and commitments are assessed for credit risk and assigned ratings based on various characteristics, such as the borrower's cash flow, leverage, and collateral. Ratings for commercial credits are reviewed at least annually or more often if events or circumstances arise that could impact the rating. The following tables present credit quality indicators for corporate and consumer loans on an amortized cost basis as of March 31, 2020.

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Corporate Loan Portfolio by Origination Year

(Dollar amounts in thousands)

	2020(1)		2019		2018		2017		2016		Prior		Revolving Loans		Total
Commercial, industrial, and agricultural:
Pass	$	347,347	$	886,843	$	969,223	$	536,226	$	254,029	$	496,992	$	1,684,205	$	5,174,865
Special Mention(2)	4,155		10,109		11,814		4,424		10,296		14,678		65,270		120,746
Substandard(3)	523		3,256		25,569		17,947		14,907		15,875		30,769		108,846
Non-accrual(4)	—		130		2,199		10,969		5,300		6,129		15,108		39,835
Total commercial, industrial, and agricultural	$	352,025	$	900,338	$	1,008,805	$	569,566	$	284,532	$	533,674	$	1,795,352	$	5,444,292
Commercial, industrial, and agricultural net loan charge-offs	$	—	$	1	$	533	$	196	$	398	$	1,612	$	3,167	$	5,907
Office, retail, and industrial:
Pass	$	91,286	$	261,537	$	269,725	$	369,944	$	336,235	$	730,037	$	97,171	$	2,155,935
Special Mention(2)	790		3,170		1,888		5,127		20,430		12,494		—		43,899
Substandard(3)	—		—		—		374		626		33,609		—		34,609
Non-accrual(4)	—		—		132		2,166		11,878		30,018		431		44,625
Total office, retail, and industrial	$	92,076	$	264,707	$	271,745	$	377,611	$	369,169	$	806,158	$	97,602	$	2,279,068
Office, retail, and industrial net loan charge-offs	$	—	$	333	$	—	$	—	$	4	$	(8)	$	—	$	329
Multi-family:
Pass	$	64,735	$	204,728	$	112,066	$	103,257	$	108,573	$	263,163	$	33,223	$	889,745
Special Mention(2)	—		—		—		—		—		7,754		—		7,754
Substandard(3)	—		—		389		84		—		5,440		—		5,913
Non-accrual(4)	—		—		—		2,339		237		293		—		2,869
Total multi-family	$	64,735	$	204,728	$	112,455	$	105,680	$	108,810	$	276,650	$	33,223	$	906,281
Multi-family net loan charge-offs	$	—	$	4	$	—	$	1	$	—	$	—	$	—	$	5
Construction:
Pass	$	6,359	$	124,887	$	125,846	$	89,101	$	66,763	$	64,836	$	31,327	$	509,119
Special Mention(2)	—		—		—		2,621		13,494		1,258		—		17,373
Substandard(3)	—		—		—		—		—		7,277		—		7,277
Non-accrual(4)	—		—		—		1,282		—		25,915		1,723		28,920
Total construction	$	6,359	$	124,887	$	125,846	$	93,004	$	80,257	$	99,286	$	33,050	$	562,689
Construction net loan charge-offs	$	—	$	118	$	—	$	—	$	—	$	1,690	$	—	$	1,808
Other commercial real estate:
Pass	$	14,525	$	166,652	$	241,391	$	202,227	$	105,808	$	488,295	$	27,508	$	1,246,406
Special Mention(2)	—		1,506		6,523		22,233		7,204		12,288		1,300		51,054
Substandard(3)	—		—		—		1,409		2,926		36,166		—		40,501
Non-accrual(4)	—		—		228		481		326		10,238		578		11,851
Total other commercial real estate	$	14,525	$	168,158	$	248,142	$	226,350	$	116,264	$	546,987	$	29,386	$	1,349,812
Other commercial real estate net loan charge- offs	$	—	$	38	$	1	$	—	$	183	$	(58)	$	—	$	164

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

⁽²⁾Loans categorized as special mention exhibit potential weaknesses that require the close attention of management since these potential weaknesses may result in the deterioration of repayment prospects in the future.

⁽³⁾Loans categorized as substandard exhibit well-defined weaknesses that may jeopardize the liquidation of the debt. These loans continue to accrue interest because they are well-secured, and collection of principal and interest is expected within a reasonable time.

⁽⁴⁾Loans categorized as non-accrual exhibit well-defined weaknesses that may jeopardize the liquidation of the debt or result in a loss if the deficiencies are not corrected.

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Consumer Loan Portfolio by Origination Year

(Dollar amounts in thousands)

	2020(1)		2019		2018		2017		2016		Prior		Revolving Loans		Total
Home equity:
Performing	$	6,977	$	12,504	$	17,504	$	13,646	$	12,349	$	60,561	$	832,727	$	956,268
Non-accrual	—		22		110		265		494		7,159		1,453		9,503
Total home equity	$	6,977	$	12,526	$	17,614	$	13,911	$	12,843	$	67,720	$	834,180	$	965,771
Home equity net loan charge-offs	$	—	$	—	$	1	$	—	$	1	$	51	$	(7)	$	46
1-4 family mortgages:
Performing	$	134,450	$	798,396	$	378,397	$	181,443	$	196,581	$	269,883	$	443	$	1,959,593
Non-accrual	—		—		422		83		63		8,428		—		8,996
Total 1-4 family mortgages	$	134,450	$	798,396	$	378,819	$	181,526	$	196,644	$	278,311	$	443	$	1,968,589
1-4 family mortgages net loan charge-offs	$	—	$	—	$	4	$	—	$	4	$	81	$	—	$	89
Installment:
Performing	$	42,072	$	204,697	$	120,799	$	53,601	$	21,380	$	23,003	$	22,963	$	488,515
Non-accrual	—		—		—		—		—		—		—		—
Total installment	$	42,072	$	204,697	$	120,799	$	53,601	$	21,380	$	23,003	$	22,963	$	488,515
Installment net loan charge-offs	$	—	$	1,685	$	1,183	$	455	$	52	$	391	$	—	$	3,766

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

During the quarter ended March 31, 2020, $7.0 million of revolving loans converted to term loans.

The following tables present credit quality indicators by class for corporate and consumer loans on an amortized cost basis as of December 31, 2019.

Corporate Credit Quality Indicators by Class

(Dollar amounts in thousands)

	Pass		Special Mention(1)		Substandard(2)		Non-accrual(3)		Total
As of December 31, 2019
Commercial and industrial	$	4,324,709	$	47,665	$	79,156	$	29,995	$	4,481,525
Agricultural	350,827		32,764		16,071		5,954		405,616
Commercial real estate:
Office, retail, and industrial	1,747,287		42,230		33,344		25,857		1,848,718
Multi-family	839,615		8,279		5,962		2,697		856,553
Construction	564,495		17,977		10,469		152		593,093
Other commercial real estate	1,295,155		39,788		44,036		4,729		1,383,708
Total commercial real estate	4,446,552		108,274		93,811		33,435		4,682,072
Total corporate loans	$	9,122,088	$	188,703	$	189,038	$	69,384	$	9,569,213

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

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

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

25

Consumer Credit Quality Indicators by Class

(Dollar amounts in thousands)

	Performing		Non-accrual		Total
As of December 31, 2019
Home equity	$	843,011	$	8,443	$	851,454
1-4 family mortgages	1,922,636		4,442		1,927,078
Installment	492,585		—		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 March 31, 2020 and December 31, 2019. See Note 1, "Summary of Significant Accounting Policies," for the accounting policy for TDRs.

TDRs by Class

(Dollar amounts in thousands)

	As of March 31, 2020						As of December 31, 2019
	Accruing		Non-accrual(1)		Total		Accruing		Non-accrual(1)		Total
Commercial and industrial	$	223	$	12,905	$	13,128	$	227	$	16,420	$	16,647
Agricultural	—		—		—		—		—		—
Commercial real estate:
Office, retail, and industrial	—		4,410		4,410		—		3,600		3,600
Multi-family	161		—		161		163		—		163
Construction	—		—		—		—		—		—
Other commercial real estate	167		—		167		170		—		170
Total commercial real estate	328		4,410		4,738		333		3,600		3,933
Total corporate loans	551		17,315		17,866		560		20,020		20,580
Home equity	35		354		389		36		240		276
1-4 family mortgages	630		248		878		637		—		637
Installment	—		—		—		—		252		252
Total consumer loans	665		602		1,267		673		492		1,165
Total loans	$	1,216	$	17,917	$	19,133	$	1,233	$	20,512	$	21,745

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

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

There were no material restructurings during the quarters ended March 31, 2020 and 2019.

Accruing TDRs that do not perform in accordance with their modified terms are transferred to non-accrual. There were no material TDRs that defaulted within twelve months of the restructure date during the quarters ended March 31, 2020 and 2019.

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

TDR Rollforward

(Dollar amounts in thousands)

	Quarters Ended   March 31,
	2020		2019
Accruing
Beginning balance	$	1,233	$	1,866
Additions	—		12
Net payments	(17)		(34)
Net transfers to non-accrual	—		—
Ending balance	1,216		1,844
Non-accrual
Beginning balance	20,514		6,612
Additions	934		—
Net (payments) advances	(658)		2,921
Charge-offs	(2,873)		(158)
Net transfers from accruing	—		—
Ending balance	17,917		9,375
Total TDRs	$	19,133	$	11,219

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

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8. LEASE OBLIGATIONS

The Company has the right to utilize certain premises under non-cancelable operating leases with varying maturity dates through the year ending December 31, 2059. As of March 31, 2020, the weighted-average remaining lease term on these leases was 10.98 years. Various leases contain renewal or termination options controlled by the Company or options to purchase the leased property during or at the expiration of the lease period at specific prices. Some leases contain escalation clauses calling for rentals to be adjusted for increased real estate taxes and other operating expenses or proportionately adjusted for increases in consumer or other price indices. Variable payments for real estate taxes and other operating expenses are considered to be non-lease components and are excluded from the determination of the lease liability. In addition, the Company leases or subleases certain real estate to third-parties. The following summary reflects the future minimum payments by year required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year and a reconciliation of those payments to the Company's lease liability as of March 31, 2020.

Lease Liability

(Dollar amounts in thousands)

	As of    March 31, 2020
Year Ending December 31,
2020	$	14,167
2021	18,773
2022	18,657
2023	18,756
2024	18,458
2025 and thereafter	105,945
Total minimum lease payments	194,756
Discount(1)	(30,101)
Lease liability(2)	$	164,655

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

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

The discount rate for the Company's operating leases is the rate implicit in the lease and, if that rate cannot be readily determined, the Company's incremental borrowing rate. The weighted-average discount rate on the Company's operating leases was 3.01% as of March 31, 2020.

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

The following table presents net operating lease expense for the quarters ended March 31, 2020 and 2019.

Net Operating Lease Expense

(Dollar amounts in thousands)

	Quarters Ended   March 31,
	2020		2019
Lease expense charged to operations	$	4,675	$	4,060
Rental income from premises leased to others (1)	(215)		(157)
Net operating lease expense	$	4,460	$	3,903

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

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9.  BORROWED FUNDS

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

Summary of Borrowed Funds

(Dollar amounts in thousands)

	As of
	March 31, 2020		December 31, 2019
Securities sold under agreements to repurchase	$	127,682	$	103,515
Federal funds purchased	245,000		160,000
FHLB advances	2,275,528		1,395,243
Total borrowed funds	$	2,648,210	$	1,658,758

Securities sold under agreements to repurchase are treated as financings and the obligations to repurchase securities sold are included as a liability in the Consolidated Statements of Financial Condition. Repurchase agreements are secured by U.S. treasury and agency securities which are held in third-party pledge accounts if required. The securities underlying the agreements remain in the respective asset accounts. As of March 31, 2020, the Company did not have amounts at risk under repurchase agreements with any individual counterparty or group of counterparties that exceeded 10% of stockholders' equity.

The Bank is a member of the FHLB and has access to term financing from the FHLB. These advances are secured by designated assets that may include qualifying commercial real estate, residential and multi-family mortgages, home equity loans, and certain municipal and mortgage-backed securities. As of March 31, 2020, the Company held various short-term FHLB advances with fixed interest rates that range from 0.00% to 1.73% and maturity dates that range from April 1, 2020 to March 4, 2030.

The Company hedges interest rates on borrowed funds using interest rate swaps through which the Company receives variable amounts and pays fixed amounts. See Note 12 "Derivative Instruments and Hedging Activities" for a detailed discussion of interest rate swaps.

The following table presents short-term credit lines available for use, for which the Company did not have an outstanding balance as of March 31, 2020 and December 31, 2019.

Short-Term Credit Lines Available for Use

(Dollar amounts in thousands)

	As of
	March 31, 2020		December 31, 2019
FRB's Discount Window Primary Credit Program	$	908,271	$	874,256
Available federal funds lines	633,000		718,000
Correspondent bank line of credit	50,000		50,000

On September 27, 2016, the Company entered into a loan agreement with U.S. Bank National Association providing for a $50.0 million short-term, unsecured revolving credit facility. On September 26, 2019, the Company entered into a third amendment to this credit facility, which extends the maturity to September 26, 2020. Advances will bear interest at a rate equal to one-month LIBOR plus 1.75%, adjusted on a monthly basis, and the Company must pay an unused facility fee equal to 0.35% per annum on a quarterly basis. Management expects to use this line of credit for general corporate purposes. As of March 31, 2020, no amount was outstanding under the facility.

A discussion of terms relevant to senior and subordinated debt is presented in Note 13, "Senior and Subordinated Debt" to the Consolidated Financial Statements in the Company's 2019 10-K.

10. MATERIAL TRANSACTIONS AFFECTING STOCKHOLDERS' EQUITY

Issued Common Stock

On March 9, 2020, the Company issued 4.9 million shares of its common stock with a market value of $14.58 per share at issuance as part of the consideration in the Park Bank acquisition. Additional information regarding the Park Bank acquisition is presented in Note 3, "Acquisitions".

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Stock Repurchases

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

On February 26, 2020, the Company announced a new stock repurchase program authorizing the discretionary repurchase of up to $200 million of its outstanding common stock through December 31, 2021. This program replaced the Company's prior $180 million stock repurchase program, which was set to expire in March 2020. The Company suspended repurchases in March as it shifted its capital deployment strategy in response to the COVID-19 pandemic. Prior to the suspension, the Company repurchased 1.2 million shares of its common stock at a total cost of $22.6 million during the quarter ended March 31, 2020.

11. EARNINGS PER COMMON SHARE

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

Basic and Diluted EPS

(Amounts in thousands, except per share data)

	Quarters Ended   March 31,
	2020		2019
Net income	$	19,606	$	46,058
Net income applicable to unvested restricted shares	(192)		(403)
Net income applicable to common shares	$	19,414	$	45,655
Weighted-average common shares outstanding:
Weighted-average common shares outstanding (basic)	109,922		105,770
Dilutive effect of common stock equivalents	443		—
Weighted-average diluted common shares outstanding	110,365		105,770
Basic EPS	$	0.18	$	0.43
Diluted EPS	$	0.18	$	0.43
Anti-dilutive shares not included in the computation of diluted EPS	—		—

12. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

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

Cash Flow Hedges

As of March 31, 2020, the Company hedged $630.0 million of certain corporate variable rate loans using interest rate swaps through which the Company receives fixed amounts and pays variable amounts. The Company also hedged $1.4 billion of borrowed funds using forward starting interest rate swaps through which the Company receives variable amounts and pays fixed amounts. These transactions allow the Company to add stability to net interest income and manage its exposure to interest rate movements.

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

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Cash Flow Hedges

(Dollar amounts in thousands)

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

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

Changes in the fair value of cash flow hedges are recorded in accumulated other comprehensive income (loss) on an after-tax basis and are subsequently reclassified to interest income or expense in the period that the forecasted hedged item impacts earnings. As of March 31, 2020, the Company estimates that $586,000 will be reclassified from accumulated other comprehensive income (loss) as an increase to interest income over the next twelve months.

Other Derivative Instruments

The Company also enters into derivative transactions through capital market products with its commercial customers and simultaneously enters into an offsetting interest rate derivative transaction with third-parties. This transaction allows the Company's customers to effectively convert a variable rate loan into a fixed rate loan. Due to the offsetting nature of these transactions, the Company does not apply hedge accounting treatment. The Company's credit exposure on these derivative transactions results primarily from counterparty credit risk. The credit valuation adjustment ("CVA") is a fair value adjustment to the derivative to account for this risk. As of March 31, 2020 and December 31, 2019, the Company's credit exposure was fully secured by the underlying collateral on customer loans and mitigated through netting arrangements with third-parties; therefore, no CVA was recorded. Capital market products income related to commercial customer derivative instruments totaled $4.7 million and $1.3 million for the quarters ended March 31, 2020 and 2019, respectively.

Other Derivative Instruments

(Dollar amounts in thousands)

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

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

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

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

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

Cash Flow Hedge Accounting on AOCI

(Dollar amounts in thousands)

	Quarters Ended   March 31,
	2020		2019
Gains (losses) recognized in other comprehensive income
Interest rate swaps in interest income	$	22,004	$	3,353
Interest rate swaps in interest expense	(12,409)		(4,180)
Reclassification of gains (losses) included in net income
Interest rate swaps in interest income	$	445	$	1,393
Interest rate swaps in interest expense	—		(2,024)

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

Hedge Income

(Dollar amounts in thousands)

	Quarters Ended   March 31,
	2020		2019
Cash Flow Hedges
Interest rate swaps in interest income	$	445	$	1,393
Interest rate swaps in interest expense	—		(2,024)
Total cash flow hedges	$	445	$	(631)

Credit Risk

Derivative instruments are inherently subject to credit risk, which represents the Company's risk of loss when the counterparty to a derivative contract fails to perform according to the terms of the agreement. Credit risk is managed by limiting and collateralizing the aggregate amount of net unrealized losses by transaction, monitoring the size and the maturity structure of the derivatives, and applying uniform credit standards. Company policy establishes limits on credit exposure to any single counterparty. In addition, the Company established bilateral collateral agreements with derivative counterparties that provide for exchanges of marketable securities or cash to collateralize either party's net losses above a stated minimum threshold. As of March 31, 2020 and December 31, 2019, these collateral agreements covered 100% of the fair value of the Company's outstanding derivatives. Derivative assets and liabilities are presented gross, rather than net, of pledged collateral amounts.

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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 March 31, 2020 and December 31, 2019.

Fair Value of Offsetting Derivatives

(Dollar amounts in thousands)

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

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

As of March 31, 2020 and December 31, 2019, the Company's derivative instruments generally contained provisions that require the Company's debt to remain above a certain credit rating by each of the major credit rating agencies or that the Company maintain certain capital levels. If the Company's debt were to fall below that credit rating or the Company's capital were to fall below the required levels, it would be in violation of those provisions, and the counterparties to the derivative instruments could terminate the swap transaction and demand cash settlement of the derivative instrument in an amount equal to the derivative liability fair value. As of March 31, 2020 and December 31, 2019 the Company was in compliance with these provisions.

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13. COMMITMENTS, GUARANTEES, AND CONTINGENT LIABILITIES

Credit Commitments and Guarantees

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

Contractual or Notional Amounts of Financial Instruments

(Dollar amounts in thousands)

	As of
	March 31, 2020		December 31, 2019
Commitments to extend credit:
Commercial, industrial, and agricultural	$	2,011,047	$	1,852,040
Commercial real estate	325,291		296,053
Home equity	596,402		576,956
Other commitments(1)	246,644		251,093
Total commitments to extend credit	$	3,179,384	$	2,976,142
Letters of credit	$	122,592	$	103,684

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

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

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

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

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

As a result of the sale of certain 1-4 family mortgage loans, the Company is contractually obligated to repurchase early payment default loans or loans that do not meet underwriting requirements at recorded value. In accordance with the sales agreements, there is no limitation to the maximum potential future payments or expiration of the Company's recourse obligation. There were no material loan repurchases during the quarters ended March 31, 2020 and 2019.

Legal Proceedings

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

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14. FAIR VALUE

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

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

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

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

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

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

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

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Assets and Liabilities Required to be Measured at Fair Value on a Recurring Basis

The following table provides the fair value for assets and liabilities required to be measured at fair value on a recurring basis in the Consolidated Statements of Financial Condition by level in the fair value hierarchy.

Recurring Fair Value Measurements

(Dollar amounts in thousands)

	As of March 31, 2020						As of December 31, 2019
	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Assets
Equity securities	$	21,505	$	13,593	$	—	$	23,703	$	13,400	$	—
Securities available-for-sale
U.S. treasury securities	33,309		—		—		34,075		—		—
U.S. agency securities	—		617,992		—		—		248,424		—
CMOs	—		1,700,012		—		—		1,557,671		—
MBSs	—		687,271		—		—		684,684		—
Municipal securities	—		234,559		—		—		234,431		—
Corporate debt securities	—		109,722		—		—		114,101		—
Total securities available-for-sale	33,309		3,349,556		—		34,075		2,839,311		—
Mortgage servicing rights ("MSRs")(1)	—		—		4,874		—		—		5,858
Derivative assets(1)	—		182,753		—		—		62,436		—
Liabilities
Derivative liabilities(2)	$	—	$	53,877	$	—	$	—	$	18,535	$	—

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

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

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

Equity Securities

The Company's equity securities consist primarily of community development investments and certain diversified investment securities held in a grantor trust for participants in the Company's nonqualified deferred compensation plan that are invested in money market and mutual funds. The fair value of certain community development investments is based on quoted prices in active markets or market prices for similar securities obtained from external pricing services or dealer market participants and is classified in level 2 of the fair value hierarchy. As of March 31, 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 $641.1 million and $653.7 million as of March 31, 2020 and December 31, 2019, respectively. These loans are owned by third-parties and are not included in the Consolidated Statements of Financial Condition. The Company determines the fair value of MSRs by estimating the present value of expected future cash flows associated with the mortgage loans being serviced and classifies them in level 3 of the fair value hierarchy. The following table presents the ranges of significant, unobservable inputs used by the Company to determine the fair value of MSRs as of March 31, 2020 and December 31, 2019.

Significant Unobservable Inputs Used in the Valuation of MSRs

	As of
	March 31, 2020				December 31, 2019
Prepayment speed	8.2	%	-	12.9%	6.7	%	-	12.0%
Maturity (months)	17		-	88	18		-	94
Discount rate	9.3	%	-	12.0%	9.3	%	-	12.0%

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

A rollforward of the carrying value of MSRs for the quarters ended March 31, 2020 and 2019 is presented in the following table.

Carrying Value of MSRs

(Dollar amounts in thousands)

	Quarters Ended   March 31,
	2020		2019
Beginning balance	$	5,858	$	6,730
New MSRs	156		253
Total gains (losses) included in earnings(1):
Changes in valuation inputs and assumptions	(908)		(600)
Other changes in fair value(2)	(232)		(155)
Ending balance(3)	$	4,874	$	6,228
Contractual servicing fees earned(1)	$	403	$	381

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

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

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

Derivative Assets and Derivative Liabilities

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

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Assets and Liabilities Required to be Measured at Fair Value on a Non-Recurring Basis

The following table provides the fair value for each class of assets and liabilities required to be measured at fair value on a non-recurring basis in the Consolidated Statements of Financial Condition by level in the fair value hierarchy.

Non-Recurring Fair Value Measurements

(Dollar amounts in thousands)

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

⁽¹⁾Includes non-accrual loans with charge-offs and non-accrual loans with a specific allowance during the periods presented.

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

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

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

Collateral-Dependent Non-accrual Loans

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

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

OREO

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

Loans Held-for-Sale

As of March 31, 2020 and December 31, 2019, loans held-for-sale consists of 1-4 family mortgage loans, which were originated with the intent to sell. These loans were recorded in the held-for-sale category at the contract price and, accordingly, are classified in level 3 of the fair value hierarchy.

Assets Held-for-Sale

Assets held-for-sale as of March 31, 2020 and December 31, 2019 consists of former branches that are no longer in operation and parcels of land previously purchased for expansion. These properties are being actively marketed and were transferred into the held-for-sale category at their fair value as determined by current appraisals. Based on these valuation methods, they are classified in level 3 of the fair value hierarchy.

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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
		March 31, 2020				December 31, 2019
	Fair Value Hierarchy Level	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Assets
Cash and due from banks	1	$	252,138	$	252,138	$	214,894	$	214,894
Interest-bearing deposits in other banks	2	229,474		229,474		84,327		84,327
Securities held-to-maturity	2	19,825		19,842		21,997		21,234
FHLB and FRB stock	2	154,357		154,357		115,409		115,409
Loans	3	13,745,659		13,749,883		12,733,200		12,535,848
Investment in BOLI	3	298,827		298,827		296,351		296,351
Accrued interest receivable	3	61,333		61,333		59,716		59,716
Liabilities
Deposits	2	$	14,098,950	$	14,104,641	$	13,251,278	$	13,247,871
Borrowed funds	2	2,648,210		2,648,210		1,658,758		1,658,758
Senior and subordinated debt	2	234,153		261,970		233,948		277,203
Accrued interest payable	2	8,869		8,869		10,502		10,502

Management uses various methodologies and assumptions to determine the estimated fair values of the financial instruments in the table above. The fair value estimates are made at a discrete point in time based on relevant market information and consider management's judgments regarding future expected economic conditions, loss experience, and specific risk characteristics of the financial instruments. Loans include the FDIC indemnification asset and net loans, which consists of loans held-for-investment, acquired loans, and the allowance for loan losses. As of both March 31, 2020 and December 31, 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 in metropolitan Chicago, southeast Wisconsin, northwest Indiana, central and western Illinois, eastern Iowa, and other markets in the Midwest. Our principal subsidiary, First Midwest Bank, and other affiliates provide a full range of commercial, treasury management, equipment leasing, consumer, wealth management, trust, and private banking products and services through 132 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 banking and wealth management solutions, quality products, and innovative services that fulfill those financial needs.

The following discussion and analysis is intended to address the significant factors affecting our Condensed Consolidated Statements of Income for the quarters ended March 31, 2020 and 2019 and Consolidated Statements of Financial Condition as of March 31, 2020 and December 31, 2019. When we use the terms "First Midwest," the "Company," "we," "us," and "our," we mean First Midwest Bancorp, Inc. and its consolidated subsidiaries. When we use the term "Bank," we are referring to our wholly-owned banking subsidiary, First Midwest Bank. Management's discussion and analysis should be read in conjunction with the consolidated financial statements, accompanying notes thereto, and other information presented in Item 1 of this Quarterly Report on Form 10-Q ("Form 10-Q"), as well as in our 2019 Annual Report on Form 10-K ("2019 10-K"). The results of operations for the quarter ended March 31, 2020 are not necessarily indicative of future results.

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

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

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

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

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

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

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

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

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Form 10-Q, as well as any oral statements made by or on behalf of First Midwest, may contain certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. In some cases, forward-looking statements can be identified by the use of words such as "may," "might," "will," "would," "should," "could," "expect," "plan," "intend," "anticipate," "believe," "estimate," "outlook," "predict," "project," "probable," "potential," "possible," "target," "continue," "look forward," or "assume" and words of similar import. Forward-looking statements are not historical facts or guarantees of future performance but instead express only management's beliefs regarding future results or events, many of which, by their nature, are inherently uncertain and outside of management's control. It is possible that actual results and events may differ, possibly materially, from the anticipated results or events indicated in these forward-looking statements. First

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

Forward-looking statements may be deemed to include, among other things, statements relating to First Midwest's future financial performance, including the related outlook for 2020, the performance of First Midwest's loan or securities portfolio, the expected amount of future credit allowances or charge-offs, corporate strategies or objectives, including the impact of certain actions and initiatives, anticipated trends in First Midwest's business, regulatory developments, acquisition transactions, estimated synergies, cost savings and financial benefits of announced and completed transactions, growth strategies, including possible future acquisitions, and the continued effects of the COVID-19 pandemic on our business, financial condition, liquidity, loans and results of operations. These statements are subject to certain risks, uncertainties and assumptions, including the duration, extent and severity of the COVID-19 pandemic, including the continued effects on our business, operations and employees, as well as on our customers and service providers, and on economies and markets more generally and other risks, uncertainties and assumptions that are discussed under the sections entitled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this report and in First Midwest's 2019 10-K, and in First Midwest's subsequent filings made with the Securities and Exchange Commission ("SEC"). These risks and uncertainties are not exhaustive, and other sections of these reports describe additional factors that could adversely impact First Midwest's business and financial performance.

CRITICAL ACCOUNTING ESTIMATES

Our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles ("GAAP") and are consistent with general practices within the banking industry. Application of GAAP requires management to make estimates, assumptions, and judgments based on the best available information as of the date of the financial statements that affect the amounts reported in the consolidated financial statements and accompanying notes. Critical accounting estimates are those estimates that management believes are the most important to our financial position and results of operations. Future changes in information may impact these estimates, assumptions, and judgments, which may have a material effect on the amounts reported in the financial statements. For additional information regarding critical accounting estimates, see the "Summary of Significant Accounting Policies," presented in Note 1 to the Consolidated Financial Statements and the section titled "Critical Accounting Estimates" in "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our 2019 10-K.

Upon adoption of Accounting Standards Updated ("ASU") 2016-13 on January 1, 2020, there were material changes to the Company's application of critical accounting estimates related to the allowance for credit losses and valuation of securities since December 31, 2019.

Allowance for Credit Losses

The determination of the allowance for credit losses is inherently subjective since it requires significant estimates and management judgment, including the amounts and timing of expected future cash flows, actual loss experience, consideration of current national, regional, and local economic trends and conditions, reasonable and supportable forecasts about the future, changes in interest rates and property values, various internal and external qualitative factors, and other factors, all of which are susceptible to significant change. Credit exposures deemed to be uncollectible are charged-off against the allowance for loan losses, while recoveries of amounts previously charged-off are credited to the allowance for credit losses. Additions to the allowance for credit losses are established through the provision for credit losses charged to expense. The amount charged to operating expense depends on a number of factors, including historic loan growth, changes in the composition of the loan portfolio, net charge-off levels, and our assessment of the allowance for credit losses, including our estimate of the impact of the COVID-19 pandemic. For additional discussion of the allowance for credit losses, see Notes 1 and 7 of "Notes to the Condensed Consolidated Financial Statements" in Part 1, Item 1 of this Form 10-Q.

Valuation of Securities

The fair values of securities are based on quoted prices obtained from third-party pricing services or dealer market participants where a ready market for such securities exists. In the absence of quoted prices or where a market for the security does not exist, management judgment and estimation is used, which may include modeling-based techniques. The use of different judgments and estimates to determine the fair value of securities could result in a different fair value estimate.

On a quarterly basis, the Company assesses securities with unrealized losses to determine whether impairment has occurred. In evaluating impairment, management considers many factors, including the severity of the impairment, the financial condition and near-term prospects of the issuer, including external credit ratings and recent downgrades for debt securities, intent to hold the security until its value recovers, and the likelihood that the Company would be required to sell the securities before a recovery in value, which may be at maturity. Securities for which there is an unrealized loss that is deemed to be a credit-related impairment are recorded as an allowance through a charge to expense through noninterest expense, limited to the difference

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between amortized cost and fair value. The determination of impairment is subjective and different judgments and assumptions could affect the timing and amount of loss realization. For additional discussion of securities, see Notes 1 and 4 of "Notes to the Condensed Consolidated Financial Statements" in Part 1, Item 1 of this Form 10-Q.

There have been no material changes in the Company's application of critical accounting estimates related to income taxes and goodwill and other intangible assets since December 31, 2019.

ADOPTION OF THE CURRENT EXPECTED CREDIT LOSSES STANDARD

On January 1, 2020, the Company adopted the current expected credit losses accounting standard ("CECL"), which requires the Company to present financial assets measured at amortized cost at the net amount expected to be collected considering our current estimate of all expected credit losses. Adoption of this standard on January 1, 2020 increased the allowance for credit losses by $76 million, which includes $32 million attributable to loans and unfunded commitments and $44 million attributable to purchased credit deteriorated ("PCD") and non-PCD acquired loans. For additional discussion of adopted accounting pronouncements, see Note 2 of "Notes to the Condensed Consolidated Financial Statements" in Part 1, Item 1 of this Form 10-Q.

COVID-19 PANDEMIC

The COVID-19 pandemic and the resulting governmental responses continue to impact our business and operations, as well as the business and operations of our clients. A variety of restrictions have been placed on companies and individuals throughout our primary operating footprint of Illinois, Wisconsin, Indiana and Iowa. In Illinois, where we are headquartered and conduct the substantial majority of our operations, a shelter-in-place order has been in place since March of 2020 and is currently set to expire on May 30, 2020, although additional extensions are possible and ongoing business restrictions are likely. 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 COVID-19 pandemic, including with respect to our loan portfolio, income, and funding and liquidity.

As a financial institution, we are considered an essential business and, therefore, continue to operate during applicable shelter-in-place orders. However, we have modified our operations to comply with governmental restrictions and public health authority guidelines. Substantially all non-client facing colleagues are working remotely. A majority of our branches remain open for business through drive-up services, with lobbies open by appointment only. For those colleagues who continue to work on-site, they are subject to enhanced health and safety protocols.

Additionally, we have implemented a variety of policies and programs to support our colleagues during the pandemic. On-site colleagues have received incentive bonuses and pay premiums, and we have expanded our paid time off programs for all colleagues. We have also added health and welfare benefits for all colleagues, including emergency medical and hardship loans, enhanced health insurance programs, and access to retirement benefits under certain pandemic-related circumstances.

Consistent with our long-standing emphasis on community engagement, we are actively supporting the communities we serve during the pandemic. We have committed $2.5 million from the First Midwest Charitable Foundation to support the immediate and long-term needs of our communities. This commitment does not impact current or future expense. We also recently introduced enhanced matching gift programs to support colleague donations to eligible 501(c)(3) organizations.

For additional information regarding the risks associated with COVID-19 and its expected impact on the Company, refer to the section entitled "Risk Factors" in Part II, Item 1A of this Form 10-Q.

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PARK BANK ACQUISITION

On March 9, 2020, the Company completed its acquisition of Bankmanagers Corp. ("Bankmanagers"), the holding company for Park Bank, based in Milwaukee Wisconsin. At closing, the Company acquired $1.2 billion of assets, $1.0 billion of deposits, and $691.7 million of loans, net of fair value adjustments. Under the terms of the merger agreement, on March 9, 2020, each outstanding share of Bankmanagers common stock was exchanged for 29.9675 shares of Company common stock, plus $623.02 of cash (of which $346.00 per share was paid by Bankmanagers to its shareholders by a special cash dividend immediately prior to closing). This resulted in merger consideration of $174.4 million, which consisted of 4.9 million shares of Company common stock and $102.5 million of cash. Goodwill of $57.2 million associated with the acquisition was recorded by the Company. Park Bank will be merged into First Midwest Bank and all operating systems are expected to be converted in the second quarter of 2020.

STOCK REPURCHASES

On February 26, 2020, the Company announced a stock repurchase program, under which the Company is authorized to repurchase up to $200 million of its outstanding common stock through December 31, 2021. This stock repurchase program replaces the prior $180 million program, which was scheduled to expire in March 2020. The stock repurchase program does not obligate the Company to repurchase a specific dollar amount or number of shares, and the program may be extended, modified, or discontinued at any time. Repurchases under the Company's repurchase programs are made at prices determined by the Company.

The Company suspended repurchases in March as it shifted its capital deployment strategy in response to the COVID-19 pandemic. Prior to this action, the Company repurchased 1.2 million shares of its common stock at a total cost of $22.6 million during the quarter ended March 31, 2020.

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PERFORMANCE OVERVIEW

Table 1

Selected Financial Data

(Amounts in thousands, except per share data)

	Quarters Ended   March 31,
	2020			2019
Operating Results
Interest income	$	170,227		$	162,490
Interest expense	26,652			23,466
Net interest income	143,575			139,024
Provision for loan losses	39,532			10,444
Noninterest income	39,362			34,906
Noninterest expense	117,331			102,110
Income before income tax expense	26,074			61,376
Income tax expense	6,468			15,318
Net income	$	19,606		$	46,058
Weighted-average diluted common shares outstanding	110,365			105,770
Diluted earnings per common share	$	0.18		$	0.43
Diluted earnings per common share, adjusted(1)	$	0.22		$	0.46
Performance Ratios
Return on average common equity(2)	3.23		%	8.66		%
Return on average common equity, adjusted(1)(2)	4.03		%	9.22		%
Return on average tangible common equity(2)	5.66		%	14.41		%
Return on average tangible common equity, adjusted(1)(2)	6.94		%	15.31		%
Return on average assets(2)	0.43		%	1.19		%
Return on average assets, adjusted(1)(2)	0.53		%	1.27		%
Tax-equivalent net interest margin(1)(2)(3)	3.54		%	4.04		%
Tax-equivalent net interest margin, adjusted(1)(2)(3)	3.37		%	3.86		%
Efficiency ratio(1)	60.21		%	55.69		%

⁽¹⁾This item is a non-GAAP financial measure. For a discussion of non-GAAP financial measures, see the section of this Item 2 titled "Non-GAAP Financial Information and Reconciliations."

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

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

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	As of									March 31, 2020   Change From
	March 31, 2020			December 31, 2019			March 31, 2019			December 31, 2019		March 31, 2019
Balance Sheet Highlights
Total assets	$	19,753,300		$	17,850,397		$	15,817,769		$	1,902,903	$	3,935,531
Total loans	13,965,017			12,840,330			11,569,003			1,124,687		2,396,014
Total deposits	14,098,950			13,251,278			12,160,982			847,672		1,937,968
Core deposits	11,162,753			10,217,824			9,559,684			944,929		1,603,069
Loans to deposits	99.1		%	96.9		%	95.1		%
Core deposits to total deposits	79.2		%	77.1		%	78.6		%
Asset Quality Highlights
Non-accrual loans, excluding PCD   loans(1)(2)	$	97,649		$	82,269		$	70,205		$	15,380	$	27,444
Non-accrual PCD loans(1)	48,950			—			—			48,950		48,950
Total non-accrual loans	146,599			82,269			70,205			64,330		76,394
90 days or more past due loans, still   accruing interest(1)	5,052			5,001			8,446			51		(3,394)
Total non-performing loans	151,651			87,270			78,651			64,381		73,000
Accruing troubled debt restructurings ("TDRs")	1,216			1,233			1,844			(17)		(628)
Foreclosed assets(3)	21,027			20,458			10,818			569		10,209
Total non-performing assets	$	173,894		$	108,961		$	91,313		$	64,933	$	82,581
30-89 days past due loans(1)	$	81,127		$	31,958		$	45,764		$	49,169	$	35,363
30-89 days past due loans, excluding PCD   loans(1)(2)	$	75,581		$	31,958		$	45,764		$	43,623	$	29,817
Non-performing assets to total loans plus foreclosed assets	1.24		%	0.85		%	0.79		%
Non-performing assets to total loans plus   foreclosed assets, excluding PCD   loans(1)(2)	0.91		%	0.85		%	0.79		%
Allowance for Credit Losses
Allowance for credit losses	$	226,701		$	109,222		$	104,779		$	117,479	$	121,922
Allowance for credit losses to total loans(4)	1.62		%	0.85		%	0.91		%
Allowance for credit losses to non-accrual loans	154.64		%	132.76		%	149.25		%

⁽¹⁾Prior to the adoption of CECL on January 1, 2020, purchased credit impaired ("PCI") loans with an accretable yield were considered current and were not included in past due loan totals. In addition, PCI loans with an accretable yield were excluded from non-accrual loans. Subsequent to adoption, PCD loans, including those previously classified as PCI, are included in past due and non-accrual loan totals. In addition, an allowance for credit losses is established as of the acquisition date or upon the adoption of CECL for loans previously classified as PCI, as PCD loans are no longer recorded net of a credit-related acquisition adjustment.

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

⁽³⁾Foreclosed assets consists of other real estate owned ("OREO") and other foreclosed assets acquired in partial or total satisfaction of defaulted loans. Other foreclosed assets are included in other assets in the Consolidated Statements of Financial Condition.

⁽⁴⁾Prior to the adoption of CECL on January 1, 2020, this ratio included acquired loans that were recorded at fair value through an acquisition adjustment netted in loans, which incorporated credit risk as of the acquisition date with no allowance for credit losses being established at that time. As the acquisition adjustment was accreted into income over future periods, an allowance for credit losses on acquired loans was established as necessary to reflect credit deterioration. Subsequent to adoption, an allowance for credit losses on acquired loans is established as of the acquisition date and the acquired loans are no longer recorded net of a credit-related acquisition adjustment.

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EARNINGS PERFORMANCE

Net Interest Income

Net interest income is our primary source of revenue and is impacted by interest rates and the volume and mix of interest-earning assets and interest-bearing liabilities. The accounting policies for the recognition of interest income on loans, securities, and other interest-earning assets are presented in Note 1 to the Consolidated Financial Statements included in our 2019 10-K.

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

Table 2 summarizes our average interest-earning assets and interest-bearing liabilities for the quarters ended March 31, 2020 and 2019, the related interest income and interest expense for each earning asset category and funding source, and the average interest rates earned and paid. Table 2 also details differences in interest income and expense from the prior quarter and the extent to which any changes are attributable to volume and rate fluctuations.

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Table 2

Net Interest Income and Margin Analysis

(Dollar amounts in thousands)

	Quarters Ended March 31,										Attribution of Change in Net Interest Income
	2020					2019
	Average Balance		Interest		Yield/ Rate (%)	Average Balance		Interest		Yield/ Rate (%)	Volume		Yield/ Rate		Total
Assets
Other interest-earning assets	$	164,351	$	816	2.00	$	125,615	$	728	2.35	$	164	$	(76)	$	88
Securities(1)	3,066,574		20,757		2.71	2,371,692		16,387		2.76	4,597		(227)		4,370
Federal Home Loan Bank ("FHLB") and Federal Reserve Bank ("FRB") stock	126,643		1,387		4.38	79,821		952		4.77	505		(70)		435
Loans(1)(2)	13,073,752		148,420		4.57	11,458,233		145,531		5.15	11,697		(8,808)		2,889
Total interest-earning assets(1)(2)	16,431,320		171,380		4.19	14,035,361		163,598		4.72	16,963		(9,181)		7,782
Cash and due from banks	261,336					202,101
Allowance for loan losses	(179,392)					(107,520)
Other assets	1,891,557					1,537,897
Total assets	$	18,404,821				$	15,667,839
Liabilities and Stockholders' Equity
Savings deposits	$	2,069,163	164		0.03	$	2,037,831	346		0.07	5		(187)		(182)
NOW accounts	2,273,156		1,630		0.29	2,083,366		2,162		0.42	223		(755)		(532)
Money market deposits	2,227,707		3,099		0.56	1,809,234		2,349		0.53	573		177		750
Time deposits	2,932,466		12,224		1.68	2,647,316		11,745		1.80	1,092		(613)		479
Borrowed funds	2,007,700		5,841		1.17	877,995		3,551		1.64	2,929		(639)		2,290
Senior and subordinated debt	234,053		3,694		6.35	203,899		3,313		6.59	466		(85)		381
Total interest-bearing liabilities	11,744,245		26,652		0.91	9,659,641		23,466		0.99	5,288		(2,102)		3,186
Demand deposits	3,884,015					3,587,480
Total funding sources	15,628,260				0.69	13,247,121				0.72
Other liabilities	361,404					282,437
Stockholders' equity – common	2,415,157					2,138,281
Total liabilities and stockholders' equity	$	18,404,821				$	15,667,839
Tax-equivalent net interest   income/margin(1)			144,728		3.54			140,132		4.04	$	11,675	$	(7,079)	$	4,596
Tax-equivalent adjustment			(1,153)					(1,108)
Net interest income (GAAP)			$	143,575				$	139,024
Impact of acquired loan   accretion(1)			$	6,946	0.17			$	6,369	0.18
Tax-equivalent net interest income/   margin, adjusted(1)			$	137,782	3.37			$	133,763	3.86

⁽¹⁾Interest income and yields on tax-exempt securities and loans are presented on a tax-equivalent basis, assuming a federal income tax rate of 21%. The corresponding income tax impact related to tax-exempt items is recorded in income tax expense. These adjustments have no impact on net income. See the section of this Item 2 titled "Non-GAAP Financial Information and Reconciliations" for a discussion of this non-GAAP financial measure.

⁽²⁾Non-accrual loans, which totaled $146.6 million as of March 31, 2020 and $70.2 million as of March 31, 2019, are included in loans for purposes of this analysis. Additional detail regarding non-accrual loans is presented in the following section of this Item 2 titled "Non-performing Assets and Corporate Performing Potential Problem Loans."

Net interest income for the first quarter of 2020 was up 3.3% from the first quarter of 2019. The rise in net interest income resulted primarily from the acquisition of interest-earning assets from the Park Bank and Bridgeview Bank Group ("Bridgeview") transactions that closed in March 2020 and May 2019, respectively, growth in loans and securities, and lower cost of funds, significantly offset by lower interest rates.

47

Acquired loan accretion contributed $6.9 million and $6.4 million to net interest income for the first quarter of 2020 and 2019, respectively.

Tax-equivalent net interest margin for the first quarter of 2020 was 3.54%, decreasing 50 basis points from the same period in 2019. Excluding the impact of acquired loan accretion, tax-equivalent net interest margin was 3.37% for the first quarter of 2020, down 49 basis points from the first quarter of 2019. The decline in tax-equivalent net interest margin compared to the first quarter of 2019 was due primarily to lower interest rates and actions taken to reduce rate sensitivity.

For the first quarter of 2020, total average interest-earning assets rose by $2.4 billion from the same period in 2019. The increase resulted primarily from the Park Bank and Bridgeview transactions, loan growth, and security purchases.

Total average funding sources for the first quarter of 2020 increased by $2.4 billion from the same period in 2019, due primarily to the Park Bank and Bridgeview transactions, organic growth, and FHLB advances.

Noninterest Income

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

Table 3

Noninterest Income Analysis

(Dollar amounts in thousands)

	Quarters Ended   March 31,
	2020		2019		% Change
Wealth management fees	$	12,361	$	11,600	6.6
Service charges on deposit accounts	11,781		11,540		2.1
Capital market products income	4,722		1,279		269.2
Card-based fees, net (1)	3,968		4,378		(9.4)
Mortgage banking income	1,788		1,004		78.1
Other service charges, commissions, and fees	2,682		2,611		2.7
Total fee-based revenues	37,302		32,412		15.1
Other income(2)	3,065		2,494		22.9
Net securities losses	(1,005)		—		—
Total noninterest income	$	39,362	$	34,906	12.8

⁽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.

⁽²⁾Other income consists of various items, including BOLI income, safe deposit box rentals, miscellaneous recoveries, and gains on the sales of various assets.

Total noninterest income of $39.4 million for the first quarter was up 12.8% from the same period in 2019. The increase in wealth management fees compared to the first quarter of 2019 resulted from continued sales of fiduciary and investment advisory services to new and existing customers. Capital market products income increased compared to the prior period as a result of higher sales to corporate clients reflecting the lower long-term rate environment. The decrease in net card-based fees compared to the first quarter of 2019 was due primarily to the fee assistance programs offered to our clients as a result of COVID-19.

Mortgage banking income for the first quarter of 2020 resulted from sales of $116.6 million of 1-4 family mortgage loans in the secondary market, compared to $57.5 million for the same period in 2019. In addition, mortgage banking income for the first quarter of 2020 was impacted by negative changes in the fair value of mortgage servicing rights due to market conditions.

Other income increased compared to the first quarter of 2019 due primarily to benefit settlements on BOLI.

Net securities losses of $1.0 million were recognized during the first quarter of 2020 as a result of repositioning of the Company's securities portfolio due to market conditions.

48

Noninterest Expense

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

Table 4

Noninterest Expense Analysis

(Dollar amounts in thousands)

	Quarters Ended   March 31,
	2020		2019		% Change
Salaries and employee benefits:
Salaries and wages	$	49,990	$	46,135	8.4
Retirement and other employee benefits	12,869		11,238		14.5
Total salaries and employee benefits	62,859		57,373		9.6
Net occupancy and equipment expense	14,227		13,797		3.1
Professional services	10,390		7,087		46.6
Technology and related costs	8,548		6,270		36.3
Advertising and promotions	2,761		2,372		16.4
Net OREO expense	420		681		38.3
Other expenses	12,654		10,581		19.6
Acquisition and integration related expenses	5,472		3,691		48.3
Delivering Excellence implementation costs	—		258		(100.0)
Total noninterest expense	$	117,331	$	102,110	14.9
Acquisition and integration related expenses	(5,472)		(3,691)		48.3
Delivering Excellence implementation costs	—		(258)		(100.0)
Total noninterest expense, adjusted(1)	$	111,859	$	98,161	14.0

⁽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."

Total noninterest expense increased 14.9% from the first quarter of 2019. Noninterest expense for both periods was impacted by acquisition and integration related expenses. The first quarter of 2019 was impacted by costs related to implementation of the Company's Delivering Excellence initiative. Excluding these items, noninterest expense for the first quarter of 2020 was $111.9 million, up 14.0% from the same period in 2019. Overall, noninterest expense, adjusted, to average assets was well controlled at 2.44% for the first quarter of 2020, down 10 basis points from the first quarter of 2019.

Operating costs associated with the Park Bank and Bridgeview transactions contributed to noninterest expense for the first quarter of 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 prior period, the increase in salaries and employee benefits was also impacted by merit increases and commissions resulting from sales of 1-4 family mortgage loans in the secondary market, partially offset by lower incentive compensation expense and equity compensation valuations. Technology and related costs compared to the first quarter of 2019 were impacted by investments in technology. Professional services increased compared to the first quarter of 2019 due to process enhancements and expenses associated with higher capital market products income. Compared to the first quarter of 2019, other expenses increased as a result of higher servicing fees from purchases of consumer loans and other miscellaneous expenses associated with organizational growth.

Acquisition and integration related expenses for the first quarter of 2020 resulted from the Park Bank and Bridgeview acquisitions. For the first quarter of 2019, acquisition and integration related expenses resulted from the Northern States, Northern Oak, and Bridgeview acquisitions.

49

Income Taxes

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

Table 5

Income Tax Expense Analysis

(Dollar amounts in thousands)

	Quarters Ended   March 31,
	2020			2019
Income before income tax expense	$	26,074		$	61,376
Income tax expense:
Federal income tax expense	$	5,337		$	11,066
State income tax expense	1,131			4,252
Total income tax expense	$	6,468		$	15,318
Effective income tax rate	24.8		%	25.0		%

Federal income tax expense and the related effective income tax rate are influenced by the amount of tax-exempt income derived from investment securities and BOLI in relation to pre-tax income as well as state income taxes. State income tax expense and the related effective income tax rate are driven by the amount of state tax-exempt income in relation to pre-tax income and state tax rules related to consolidated/combined reporting and sourcing of income and expense.

Total income tax expense for the quarter ended March 31, 2020 was impacted by lower levels of income subject to tax at statutory rates and an increase in non-deductible acquisition and integration related expenses.

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

FINANCIAL CONDITION

Investment Portfolio Management

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

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

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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 6

Investment Portfolio

(Dollar amounts in thousands)

	As of March 31, 2020							As of December 31, 2019
	Amortized Cost		Net Unrealized Gains (Losses)		Fair Value		% of Total	Amortized Cost		Net Unrealized Gains (Losses)		Fair Value		% of Total
Securities Available-for-Sale
U.S. treasury securities	$	32,954	$	355	$	33,309	1.0	$	33,939	$	136	$	34,075	1.2
U.S. agency securities	616,469		1,523		617,992		18.3	249,502		(1,078)		248,424		8.6
Collateralized mortgage obligations ("CMOs")	1,640,928		59,084		1,700,012		50.3	1,547,805		9,866		1,557,671		54.2
Other mortgage-backed securities ("MBSs")	662,529		24,742		687,271		20.3	678,804		5,880		684,684		23.8
Municipal securities	228,744		5,815		234,559		6.9	228,632		5,799		234,431		8.2
Corporate debt securities	117,785		(8,063)		109,722		3.2	112,797		1,304		114,101		4.0
Total securities available-for-sale	$	3,299,409	$	83,456	$	3,382,865	100.0	$	2,851,479	$	21,907	$	2,873,386	100.0
Securities Held-to-Maturity
Municipal securities(1)	$	19,825	$	17	$	19,842		$	21,997	$	(763)	$	21,234
Equity Securities					$	40,098						$	42,136

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

Portfolio Composition

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

Table 7

Securities Effective Duration Analysis

	As of March 31, 2020					As of December 31, 2019
	Effective		Average	Yield to		Effective		Average	Yield to
	Duration(1)		Life(2)	Maturity(3)		Duration(1)		Life(2)	Maturity(3)
Securities Available-for-Sale
U.S. treasury securities	0.53	%	0.54	2.08	%	0.66	%	0.69	2.27	%
U.S. agency securities	3.90	%	5.54	2.65	%	3.07	%	5.50	2.56	%
CMOs	1.75	%	3.48	2.50	%	2.98	%	4.59	2.55	%
MBSs	2.91	%	3.64	2.65	%	4.05	%	4.94	2.79	%
Municipal securities	4.37	%	4.63	2.86	%	4.35	%	4.58	2.77	%
Corporate debt securities	1.26	%	5.65	3.02	%	1.39	%	5.63	3.15	%
Total securities available-for-sale	2.54	%	4.02	2.60	%	3.26	%	4.75	2.65	%
Securities Held-to-Maturity
Municipal securities	3.28	%	3.92	4.22	%	3.24	%	4.09	4.52	%

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

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

⁽³⁾Yields on municipal securities are reflected on a tax-equivalent basis, assuming the applicable federal income tax rate for each period presented.

Effective Duration

The average life and effective duration of our securities available-for-sale portfolio was 4.02 years and 2.54%, respectively, as of March 31, 2020, down from 4.75 years and 3.26% as of December 31, 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 net securities losses of $1.0 million for the first quarter of 2020 as a result of repositioning of the securities portfolio due to market conditions. There were no securities gains (losses) or impairment charges recognized during the first quarter of 2019.

Unrealized Gains and Losses

Unrealized gains and losses on securities available-for-sale represent the difference between the aggregate cost and fair value of the portfolio. These amounts are presented in the Consolidated Statements of Comprehensive Income and reported as a separate component of stockholders' equity in accumulated other comprehensive loss, net of deferred income taxes. This balance sheet component will fluctuate as interest rates and conditions change and affect the aggregate fair value of the portfolio. Lower market interest rates drove the change to $83.5 million of unrealized gains as of March 31, 2020 compared to $21.9 million of unrealized gains as of December 31, 2019.

LOAN PORTFOLIO AND CREDIT QUALITY

Portfolio Composition

Our loan portfolio is comprised of both corporate and consumer loans, with corporate loans representing 75.5% of total loans as of March 31, 2020. Consistent with our emphasis on relationship banking, the majority of our corporate loans are made to our core, multi-relationship customers. The customers usually maintain deposit relationships and utilize certain of our other banking services, such as treasury or wealth management services.

To maximize loan income within an acceptable level of risk, we have certain lending policies and procedures that management reviews on a regular basis. In addition, management receives periodic reporting related to loan production, loan quality, credit 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 8

Loan Portfolio

(Dollar amounts in thousands)

	As of
	March 31, 2020							December 31, 2019			% Change
	Legacy		Acquired(1)		Total		% of Total Loans	Total		% of Total Loans	Legacy	Total
Commercial and industrial	$	4,768,577	$	282,577	$	5,051,154	36.2	$	4,481,525	34.9	6.4	12.7
Agricultural	393,063		75		393,138		2.8	405,616		3.2	(3.1)	(3.1)
Commercial real estate:
Office, retail, and industrial	1,876,618		402,450		2,279,068		16.3	1,848,718		14.4	1.5	23.3
Multi-family	884,442		21,839		906,281		6.5	856,553		6.7	3.3	5.8
Construction	562,689		—		562,689		4.0	593,093		4.6	(5.1)	(5.1)
Other commercial real estate	1,349,812		—		1,349,812		9.7	1,383,708		10.8	(2.4)	(2.4)
Total commercial real estate	4,673,561		424,289		5,097,850		36.5	4,682,072		36.5	(0.2)	8.9
Total corporate loans	9,835,201		706,941		10,542,142		75.5	9,569,213		74.6	2.8	10.2
Home equity	955,012		10,759		965,771		6.9	851,454		6.6	12.2	13.4
1-4 family mortgages	1,957,027		11,562		1,968,589		14.1	1,927,078		15.0	1.6	2.2
Installment	480,110		8,405		488,515		3.5	492,585		3.8	(2.5)	(0.8)
Total consumer loans	3,392,149		30,726		3,422,875		24.5	3,271,117		25.4	3.7	4.6
Total loans	$	13,227,350	$	737,667	$	13,965,017	100.0	$	12,840,330	100.0	3.0	8.8

⁽¹⁾ Amount represents loans acquired in the Park Bank acquisition, which was completed in the first quarter of 2020.

Loan growth was positively impacted by the Park Bank acquisition in the first quarter of 2020, which added loans of $737.7 million as of March 31, 2020. Excluding these loans, total loans grew 12.1% annualized from December 31, 2019. In addition, total corporate loans benefited from growth in commercial and industrial loans as a result of both new production and existing line draws, primarily within our sector-based lending businesses. Strong production within commercial real estate loans was offset by the impact of certain customers selling their commercial business or investment real estate properties, as well as refinancing with institutions offering loan terms outside of our credit parameters. Growth in consumer loans resulted primarily from purchases of home equity loans and 1-4 family mortgages, as well as organic growth.

Commercial, Industrial, and Agricultural Loans

Commercial, industrial, and agricultural loans represented 39.0% of total loans, and totaled $5.4 billion at March 31, 2020, an increase of $557.2 million, or 11.4%, from December 31, 2019. Our commercial and industrial loans are a diverse group of loans generally located in the Chicago metropolitan area with purposes that include supporting working capital needs, accounts receivable financing, inventory and equipment financing, and select sector-based lending, such as healthcare, asset-based lending, structured finance, and syndications. Most commercial and industrial loans are secured by the assets being financed or other business assets, such as accounts receivable or inventory. The underlying collateral securing commercial and industrial loans may fluctuate in value due to the success of the business or economic conditions. For loans secured by accounts receivable, the availability of funds for repayment and economic conditions may impact the cash flow of the borrower. Accordingly, the underwriting for these loans is based primarily on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower and may incorporate a personal guarantee.

Agricultural loans are generally provided to meet seasonal production, equipment, and farm real estate borrowing needs of individual and corporate crop and livestock producers. Seasonal crop production loans are repaid by the liquidation of the financed crop that is typically covered by crop insurance. Equipment and real estate term loans are repaid through cash flows of the farming operation. Risks uniquely inherent in agricultural loans relate to weather conditions, agricultural product pricing, and loss of crops or livestock due to disease or other factors. Therefore, as part of the underwriting process, the Company examines projected future cash flows, financial statement stability, and the value of the underlying collateral.

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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 March 31, 2020 and December 31, 2019.

Table 9

Commercial Real Estate Loans

(Dollar amounts in thousands)

	As of    March 31, 2020		% of Total	As of    December 31, 2019		% of Total
Office, retail, and industrial:
Office	$	764,264	15.0	$	643,575	13.7
Retail	727,392		14.3	607,712		13.0
Industrial	787,412		15.4	597,431		12.8
Total office, retail, and industrial	2,279,068		44.7	1,848,718		39.5
Multi-family	906,281		17.8	856,553		18.3
Construction	562,689		11.1	593,093		12.7
Other commercial real estate:
Multi-use properties	296,890		5.8	300,488		6.4
Rental properties	270,832		5.3	277,350		5.9
Warehouses and storage	175,245		3.4	166,750		3.6
Hotels	116,235		2.3	127,213		2.7
Service stations and truck stops	112,097		2.2	114,205		2.4
Recreational	92,653		1.8	89,246		1.9
Restaurants	91,046		1.8	102,341		2.2
Other	194,814		3.8	206,115		4.4
Total other commercial real estate	1,349,812		26.4	1,383,708		29.5
Total commercial real estate	$	5,097,850	100.0	$	4,682,072	100.0

Commercial real estate loans represent 36.5% of total loans, and totaled $5.1 billion at March 31, 2020, increasing $415.8 million, or 8.9%, from December 31, 2019.

The mix of properties securing the loans in our commercial real estate portfolio is balanced between owner-occupied and investor categories and is diverse in terms of type and geographic location, generally within the Company's markets. Approximately 36% of the commercial real estate portfolio, excluding multi-family and construction loans, is owner-occupied as of March 31, 2020. Using outstanding loan balances, non-owner-occupied commercial real estate loans to total capital was 202% and construction loans to total capital was 34% as of March 31, 2020. Non-owner-occupied (investor) commercial real estate is calculated in accordance with federal banking agency guidelines and includes construction, multi-family, non-farm non-residential property, and commercial real estate loans that are not secured by real estate collateral.

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As a result of COVID-19, the Company identified certain elevated risk segments in the corporate loan portfolio including franchises, hotels, recreation and entertainment, dental professionals, restaurants, and retailers. As of March 31, 2020, these elevated risk segments approximate 5% of our granular and diverse total loan portfolio.

Consumer Loans

Consumer loans represented 24.5% of total loans, and totaled $3.4 billion at March 31, 2020, an increase of $151.8 million, or 4.6%, from December 31, 2019. Consumer loans are centrally underwritten using a credit scoring model developed by the Fair Isaac Corporation ("FICO"), which employs a risk-based system to determine the probability that a borrower may default. Underwriting standards for home equity loans are heavily influenced by statutory requirements, which include loan-to-value and affordability ratios, risk-based pricing strategies, and documentation requirements. The home equity category consists mainly of revolving lines of credit secured by junior liens on owner-occupied real estate. Loan-to-value ratios on home equity loans and 1-4 family mortgages are based on the current appraised value of the collateral. Repayment for these loans is dependent on the borrower's continued financial stability and is more likely to be impacted by adverse personal circumstances.

As a result of COVID-19, the Company identified unsecured installment loans, which was less than 2% of our total loan portfolio as of March 31, 2020, as an elevated risk segment in the consumer loan portfolio. These loans are high credit quality, geographically dispersed, and have average loan sizes of less than $10,000, which reduces our risk exposure.

Allowance for Credit Losses

Methodology for the Allowance for Credit Losses

On January 1, 2020, the Company adopted CECL, which requires the Company to present financial assets measured at amortized cost at the net amount expected to be collected considering an entity's current estimate of all expected credit losses. Prior to the adoption of CECL, the allowance for credit losses was estimated using an incurred loss model based on historical loss experience. The adoption of CECL impacted both the level of allowance for credit loss reserves as well as other asset quality metrics due to the change in accounting for acquired PCD loans. As a result, certain metrics are presented excluding PCD loans to provide comparability to prior periods.

The allowance for credit losses is comprised of the allowance for loan losses and the allowance for unfunded commitments and is maintained by management at a level believed adequate to absorb current expected credit losses inherent in the existing loan portfolio. The determination of the allowance for credit losses is inherently subjective since it requires significant estimates and management judgment, including the amounts and timing of expected future cash flows on non-accrual loans, actual loss experience, consideration of current national, regional, and local economic trends and conditions, reasonable and supportable forecasts about the future, changes in interest rates and property values, various internal and external qualitative factors, and other factors.

While management utilizes its best judgment and information available, the ultimate adequacy of the allowance for credit losses depends on a variety of factors beyond the Company's control, including the performance of its loan portfolio, the economy, changes in interest rates and property values, and the interpretation of loan risk ratings by regulatory authorities. Management believes that the allowance for credit losses is an appropriate estimate of current expected credit losses inherent in the existing loan portfolio as of March 31, 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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Table 10

Allowance for Credit Losses and

Summary of Credit Loss Experience

(Dollar amounts in thousands)

	Quarters Ended
	March 31, 2020			December 31, 2019			September 30, 2019			June 30, 2019			March 31, 2019
Change in allowance for credit losses
Beginning balance	$	109,222		$	110,228		$	106,929		$	104,779		$	103,419
Adjustment to apply recent accounting   pronouncements(1)	75,757			—			—			—			—
Allowance established for acquired PCD loans	14,304			—			—			—			—
Loan charge-offs:
Commercial, industrial, and agricultural	7,066			7,865			7,176			6,516			6,451
Office, retail, and industrial	338			274			293			1,605			628
Multi-family	10			—			—			—			340
Construction	1,808			4			—			—			6
Other commercial real estate	308			77			184			329			210
Consumer	4,400			4,515			3,619			2,974			3,142
Total loan charge-offs	13,930			12,735			11,272			11,424			10,777
Recoveries of loan charge-offs:
Commercial, industrial, and agricultural	1,159			1,051			1,205			1,258			1,301
Office, retail, and industrial	9			18			74			151			10
Multi-family	5			439			38			—			1
Construction	—			1			2			10			6
Other commercial real estate	144			64			227			45			21
Consumer	499			562			527			619			354
Total recoveries of loan charge-offs	1,816			2,135			2,073			2,083			1,693
Net loan charge-offs	12,114			10,600			9,199			9,341			9,084
Provision for loan losses	39,532			9,594			12,498			11,491			10,444
Ending balance	$	226,701		$	109,222		$	110,228		$	106,929		$	104,779
Total net loan charge-offs, excluding   PCD loans(2)	$	10,394		$	10,600		$	9,199		$	9,341		$	9,084
Allowance for credit losses
Allowance for loan losses	$	219,948		$	108,022		$	109,028		$	105,729		$	103,579
Allowance for unfunded commitments	6,753			1,200			1,200			1,200			1,200
Total allowance for credit losses	$	226,701		$	109,222		$	110,228		$	106,929		$	104,779
Allowance for credit losses to loans	1.62		%	0.85		%	0.86		%	0.85		%	0.91		%
Allowance for credit losses to non-accrual loans	154.64		%	132.76		%	141.88		%	168.45		%	149.25		%
Average loans	$	13,073,005		$	12,020,820		$	12,538,138		$	12,020,820		$	11,456,267
Net loan charge-offs to average loans,   annualized	0.37		%	0.33		%	0.29		%	0.31		%	0.32		%
Net loan charge-offs to average loans, excluding   PCD loans, annualized(2)	0.32		%	0.33		%	0.29		%	0.31		%	0.32		%

⁽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."

⁽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."

56

Activity in the Allowance for Credit Losses

The allowance for credit losses was $226.7 million or 1.62% of total loans as of March 31, 2020, increasing $117.5 million and $121.9 million compared to December 31, 2019 and March 31, 2019, respectively. Adoption of the CECL standard on January 1, 2020 increased the allowance for credit losses by $75.8 million, which includes $31.6 million attributable to loans and unfunded commitments, $35.7 million for PCD acquired loans, and $8.5 million for non-PCD acquired loans. As a result of COVID-19, a provision for loan losses of $28.0 million was recorded in the first quarter of 2020. In addition, $14.3 million in allowance for credit losses was established through acquisition accounting adjustments for PCD loans acquired in the Park Bank acquisition in the first quarter of 2020 along with an additional $1.7 million in provision for loan losses on non-PCD loans subsequent to acquisition.

The provision for loan losses was $39.5 million for the quarter ended March 31, 2020, up from $9.6 million for the quarter ended December 31, 2019 and from $10.4 million for the quarter ended March 31, 2019. The increase compared to both prior periods was driven primarily by a provision for loan losses of $28 million recorded as a result of the estimated impact of COVID-19.

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

57

Non-performing Assets and Corporate Performing Potential Problem Loans

The following table presents our loan portfolio by performing and non-performing status. A discussion of our accounting policies for non-accrual loans, TDRs, and loans 90 days or more past due can be found in Note 1 of "Notes to the Condensed Consolidated Financial Statements" in Part 1, Item 1 of this Form 10-Q.

Table 11

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

(Dollar amounts in thousands)

	Accruing
	Current		30-89 Days Past Due		90 Days Past Due		Non-accrual		Total Loans
As of March 31, 2020
Commercial and industrial	$	4,991,522	$	22,708	$	2,912	$	34,012	$	5,051,154
Agricultural	381,931		5,238		146		5,823		393,138
Commercial real estate:
Office, retail, and industrial	2,223,227		11,216		—		44,625		2,279,068
Multi-family	897,270		5,584		558		2,869		906,281
Construction	532,427		1,342		—		28,920		562,689
Other commercial real estate	1,315,009		22,930		22		11,851		1,349,812
Total commercial real estate	4,967,933		41,072		580		88,265		5,097,850
Total corporate loans	10,341,386		69,018		3,638		128,100		10,542,142
Home equity	952,723		3,185		360		9,503		965,771
1-4 family mortgages	1,954,626		4,967		—		8,996		1,968,589
Installment	483,504		3,957		1,054		—		488,515
Total consumer loans	3,390,853		12,109		1,414		18,499		3,422,875
Total loans	$	13,732,239	$	81,127	$	5,052	$	146,599	$	13,965,017
As of December 31, 2019
Commercial and industrial	$	4,438,063	$	11,260	$	2,207	$	29,995	$	4,481,525
Agricultural	398,676		628		358		5,954		405,616
Commercial real estate:
Office, retail, and industrial	1,820,502		1,813		546		25,857		1,848,718
Multi-family	853,762		94		—		2,697		856,553
Construction	588,065		4,876		—		152		593,093
Other commercial real estate	1,375,712		2,738		529		4,729		1,383,708
Total commercial real estate	4,638,041		9,521		1,075		33,435		4,682,072
Total corporate loans	9,474,780		21,409		3,640		69,384		9,569,213
Home equity	838,575		4,290		146		8,443		851,454
1-4 family mortgages	1,916,341		5,092		1,203		4,442		1,927,078
Installment	491,406		1,167		12		—		492,585
Total consumer loans	3,246,322		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.

58

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

Table 12

Non-Performing Assets and Past Due Loans

(Dollar amounts in thousands)

	As of
	March 31, 2020			December 31, 2019			September 30, 2019			June 30, 2019			March 31, 2019
Non-accrual loans, excluding PCD   loans(1)(2)	$	97,649		$	82,269		$	77,692		$	63,477		$	70,205
Non-accrual PCD loans(1)	48,950			—			—			—			—
Total non-accrual loans	146,599			82,269			77,692			63,477			70,205
90 days or more past due loans, still   accruing interest(1)	5,052			5,001			4,657			2,615			8,446
Total non-performing loans	151,651			87,270			82,349			66,092			78,651
Accruing TDRs	1,216			1,233			1,422			1,441			1,844
Foreclosed assets(3)	21,027			20,458			25,266			28,488			10,818
Total non-performing assets	$	173,894		$	108,961		$	109,037		$	96,021		$	91,313
30-89 days past due loans(1)	$	81,127		$	31,958		$	46,171		$	34,460		$	45,764
30-89 days past due loans, excluding PCD   loans(1)(2)	$	75,581		$	31,958		$	46,171		$	34,460		$	45,764
Non-accrual loans to total loans	1.05		%	0.64		%	0.61		%	0.51		%	0.61		%
Non-accrual loans to total loans, excluding   PCD loans(1)(2)	0.71		%	0.64		%	0.61		%	0.51		%	0.61		%
Non-performing loans to total loans	1.09		%	0.68		%	0.64		%	0.53		%	0.68		%
Non-performing loans to total loans,   excluding PCD loans(1)(2)	0.75		%	0.68		%	0.64		%	0.53		%	0.68		%
Non-performing assets to total loans plus foreclosed assets	1.24		%	0.85		%	0.85		%	0.77		%	0.79		%
Non-performing assets to total loans plus   foreclosed assets, excluding PCD   loans(1)(2)	0.91		%	0.85		%	0.85		%	0.77		%	0.79		%

⁽¹⁾Prior to the adoption of CECL on January 1, 2020, PCI loans with an accretable yield were considered current and were not included in past due loan totals. In addition, PCI loans with an accretable yield were excluded from non-accrual loans. Subsequent to adoption, PCD loans, including those previously classified as PCI, are included in past due and non-accrual loan totals. In addition, an allowance for credit losses is established as of the acquisition date or upon the adoption of CECL for loans previously classified as PCI, as PCD loans are no longer recorded net of a credit-related acquisition adjustment.

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

⁽³⁾Foreclosed assets consists of OREO and other foreclosed assets acquired in partial or total satisfaction of defaulted loans. Other foreclosed assets are included in other assets in the Consolidated Statements of Financial Condition.

Total non-performing assets represented 1.24% of total loans and foreclosed assets at March 31, 2020, compared to 0.85% and 0.79% at December 31, 2019 and March 31, 2019, respectively. Excluding the impact of PCD loans, non-performing assets to total loans plus foreclosed assets was 0.91% at March 31, 2020, reflective of normal fluctuations that occur on a quarterly basis. These fluctuations occurred within non-accrual loans and foreclosed assets and are isolated to certain credits for which the Company has remediation plans in place.

Total 30-89 days past due loans, excluding PCD loans of $75.6 million increased by $43.6 million and $29.8 million compared to December 31, 2019 and March 31, 2019, respectively. Reported levels were elevated largely due to timing as renewal and payment activity on two loan relationships was delayed into in the first week of April 2020.

59

TDRs

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

Table 13

TDRs by Type

(Dollar amounts in thousands)

	As of
	March 31, 2020			December 31, 2019			March 31, 2019
	Number of Loans	Amount		Number of Loans	Amount		Number of Loans	Amount
Commercial and industrial	9	$	13,128	9	$	16,647	5	$	9,070
Commercial real estate:
Office, retail, and industrial	2	4,410		1	3,600		—	—
Multi-family	1	161		1	163		2	552
Other commercial real estate	1	167		1	170		1	179
Total commercial real estate	4	4,738		3	3,933		3	731
Total corporate loans	13	17,866		12	20,580		8	9,801
Home equity	9	389		8	276		9	378
1-4 family mortgages	9	878		6	637		11	1,040
Installment	—	—		4	254		—	—
Total consumer loans	18	1,267		18	1,167		20	1,418
Total TDRs	31	$	19,133	30	$	21,747	28	$	11,219
Accruing TDRs	12	$	1,216	12	$	1,233	15	$	1,844
Non-accrual TDRs	19	17,917		18	20,514		13	9,375
Total TDRs	31	$	19,133	30	$	21,747	28	$	11,219
Year-to-date charge-offs on TDRs		$	2,873		$	3,557		$	158
Specific allowances related to TDRs		1,937			2,245			173

In March of 2020, the CARES Act was enacted by the U.S. government in response to the economic disruption caused by the COVID-19 pandemic. The Company's banking regulators issued a statement titled the "Interagency Statement on Loan Modifications by Financial Institutions Working with Customers Affected by the Coronavirus" that encourages financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations due to the effects of COVID-19. Additionally, the CARES Act provides that a qualified loan modification is exempt by law from classification as a TDR as defined by GAAP, from the period beginning March 1, 2020 until the earlier of December 31, 2020 or the date that is 60 days after the date on which the national emergency concerning the COVID-19 pandemic declared by the President of the United States terminates. Accordingly, we are offering short-term modifications made in response to COVID-19 to borrowers who are current and otherwise not past due. These include short-term modifications in the form of payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. The modifications completed in the three months ended March 31, 2020 were immaterial.

60

Corporate Performing Potential Problem Loans

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

Table 14

Corporate Performing Potential Problem Loans

(Dollar amounts in thousands)

	As of March 31, 2020									As of December 31, 2019
	Special Mention(1)			Substandard(2)			Total(3)			Special Mention(1)			Substandard(2)			Total(3)
Commercial and industrial	$	84,469		$	93,940		$	178,409		$	47,665		$	78,929		$	126,594
Agricultural	36,277			14,683			50,960			32,764			16,071			48,835
Commercial real estate	120,080			88,300			208,380			108,274			93,811			202,085
Total corporate performing   potential problem loans   ("CPPPLs")(4)	240,826			196,923			437,749			188,703			188,811			377,514
Less: PCD and PCI CPPPLs   included in the totals above(4)	(47,795)			(31,346)			(79,141)			(21,892)			(46,207)			(68,099)
Total CPPPLs, excluding PCD and PCI loans	$	193,031		$	165,577		$	358,608		$	166,811		$	142,604		$	309,415
CPPPLs to corporate loans	2.28		%	1.87		%	4.15		%	1.97		%	1.97		%	3.95		%
CPPPLs, excluding PCD and PCI   loans, to corporate loans(5)	1.88		%	1.61		%	3.48		%	1.77		%	1.51		%	3.28		%

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

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

⁽³⁾Total corporate performing potential problem loans excludes accruing TDRs.

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

⁽⁵⁾This item is a non-GAAP financial measure. For a discussion of non-GAAP financial measures, see the section of this Item 2 titled "Non-GAAP Financial Information and Reconciliations."

CPPPLs to corporate loans was 4.15% at March 31, 2020 compared to 3.95% at December 31, 2019. The increase in PCD and PCI CPPPLs was driven primarily by loans acquired in the Park Bank transaction, partially offset by the transition of certain loans previously classified as PCI to non-accrual PCD status upon adoption of CECL. Excluding PCD and PCI loans, CPPPLs to corporate loans was 3.48% at March 31, 2020 compared to 3.28% at December 31, 2019. The increase resulted primarily from higher levels of commercial and industrial loans classified as special mention and substandard. Management has specific monitoring and remediation plans associated with these loans.

61

Foreclosed Assets

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

Table 15

Foreclosed Assets by Type

(Dollar amounts in thousands)

	As of
	March 31, 2020		December 31, 2019		March 31, 2019
Single-family homes	$	1,640	$	1,636	$	2,241
Land parcels:
Raw land	—		—		—
Commercial lots	4,253		5,178		2,654
Single-family lots	1,543		1,543		1,543
Total land parcels	5,796		6,721		4,197
Commercial properties	2,261		393		4,380
Total OREO	9,814		8,750		10,818
Other foreclosed assets(1)	11,213		11,708		—
Total	$	21,027	$	20,458	$	10,818

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

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

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

Table 16

Foreclosed Assets Rollforward

(Dollar amounts in thousands)

	Quarters Ended March 31,
	2020		2019
Beginning balance	$	20,458	$	12,821
Transfers from loans	121		—
Acquisitions	1,868		—
Acquisition accounting adjustment	(567)		—
Proceeds from sales	(725)		(2,795)
Gains on sales of foreclosed assets	142		107
Valuation adjustments	(270)		685
Ending balance	$	21,027	$	10,818

62

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 17

Funding Sources – Average Balances

(Dollar amounts in thousands)

	Quarters Ended									March 31, 2020 % Change From
	March 31, 2020			December 31, 2019			March 31, 2019			December 31, 2019	March 31, 2019
Demand deposits	$	3,884,015		$	3,862,157		$	3,587,480		0.6	8.3
Savings deposits	2,069,163			2,044,386			2,037,831			1.2	1.5
NOW accounts	2,273,156			2,291,667			2,083,366			(0.8)	9.1
Money market accounts	2,227,707			2,178,518			1,809,234			2.3	23.1
Core deposits	10,454,041			10,376,728			9,517,911			0.7	9.8
Time deposits	2,626,405			2,792,343			2,412,052			(5.9)	8.9
Brokered deposits	306,061			241,560			235,264			26.7	30.1
Total time deposits	2,932,466			3,033,903			2,647,316			(3.3)	10.8
Total deposits	13,386,507			13,410,631			12,165,227			(0.2)	10.0
Securities sold under agreements to   repurchase	104,389			97,843			112,717			6.7	(7.4)
Federal funds purchased	258,300			114,180			722			126.2	35,675.6
FHLB advances	1,645,011			1,347,303			764,556			22.1	115.2
Total borrowed funds	2,007,700			1,559,326			877,995			28.8	128.7
Senior and subordinated debt	234,053			233,848			203,899			0.1	14.8
Total funding sources	$	15,628,260		$	15,203,805		$	13,247,121		2.8	18.0
Average interest rate paid on   borrowed funds	1.17		%	1.17		%	1.64		%
Weighted-average maturity of FHLB   advances	54.5 months			52.4 months			1.2 months
Weighted-average interest rate of   FHLB advances	0.85		%	1.34		%	2.60		%

Total average funding sources for the first quarter of 2020 increased $424.5 million, or 2.8% from the fourth quarter of 2019 and $2.4 billion, or 18.0%, compared to the first quarter of 2019. The increase in total average funding sources compared to both prior periods resulted primarily from the Park Bank transaction in the first quarter of 2020 and FHLB advances. In addition, the rise in average funding sources compared to the first quarter of 2019 was impacted by deposits assumed in the Bridgeview transaction and organic growth of deposits. The increase in the weighted-average maturity of FHLB advances compared to March 31, 2019 was driven by the addition of putable FHLB advances during the first quarter of 2020 that mature between April of 2020 and March of 2030.

As of March 31, 2020, the Company had $6.4 billion of additional funding sources to provide ample capacity to support its clients, colleagues, and communities, with $3.6 billion of the additional funding comprised of $2.0 billion of unencumbered securities and cash, $687.5 million of available FHLB capacity, and $908.3 million of Federal Reserve availability. In addition, the Company has the ability to utilize the Paycheck Protection Program Liquidity Facility to fund PPP demand for loans.

63

Table 18

Borrowed Funds

(Dollar amounts in thousands)

	March 31, 2020			March 31, 2019
	Amount		Weighted- Average Rate (%)	Amount		Weighted- Average Rate (%)
At period-end:
Securities sold under agreements to repurchase	$	127,682	0.07	$	118,852	0.09
Federal funds purchased	245,000		0.20	—		—
FHLB advances	2,275,528		0.85	855,000		2.60
Total borrowed funds	$	2,648,210	0.73	$	973,852	2.29
Average for the year-to-date period:
Securities sold under agreements to repurchase	$	104,389	0.08	$	112,717	0.08
Federal funds purchased	258,300		1.34	722		2.25
FHLB advances	1,645,011		1.21	764,556		1.87
Total borrowed funds	$	2,007,700	1.17	$	877,995	1.64
Maximum amount outstanding at the end of any day during the period:
Securities sold under agreements to repurchase	$	133,329		$	122,441
Federal funds purchased	400,000			65,000
FHLB advances	2,275,528			885,000

Average borrowed funds totaled $2.0 billion for the first quarter of 2020, increasing by $1.1 billion compared to the same period in 2019. This increase was due primarily to higher levels of FHLB advances and federal funds purchased. The weighted-average rate on FHLB advances for both periods presented was impacted by the hedging of $920.0 million and $740.0 million in FHLB advances as of March 31, 2020 and 2019, respectively, using interest rate swaps through which the Company receives variable amounts and pays fixed amounts. The weighted-average interest rate paid on these interest rate swaps was 1.26% and 1.88% as of March 31, 2020 and 2019, respectively. For a detailed discussion of interest rate swaps, see Note 12 of "Notes to the Condensed Consolidated Financial Statements" in Part I, Item 1 of this Form 10-Q.

The Company has a loan agreement with U.S. Bank National Association providing for a $50.0 million short-term, unsecured revolving credit facility that matures on September 26, 2020. Advances will bear interest at a rate equal to one-month LIBOR plus 1.75%, adjusted on a monthly basis, and the Company must pay an unused facility fee equal to 0.35% per annum on a quarterly basis. As of March 31, 2020, no amount was outstanding under the facility.

We make interchangeable use of repurchase agreements, FHLB advances, and federal funds purchased to supplement deposits. Securities sold under agreements to repurchase generally mature within 1 to 90 days from the transaction date.

MANAGEMENT OF CAPITAL

Capital Measurements

A strong capital structure is required under applicable banking regulations and is crucial in maintaining investor confidence, accessing capital markets, and enabling us to take advantage of future growth opportunities. Our capital policy requires that the Company and the Bank maintain capital ratios in excess of the minimum regulatory guidelines. It serves as an internal discipline in analyzing business risks and internal growth opportunities and sets targeted levels of return on equity. Under regulatory capital adequacy guidelines, the Company and the Bank are subject to various capital requirements set and administered by the federal banking agencies. The Company and the Bank are subject to the Basel III Capital rules, a comprehensive capital framework for U.S. banking organizations published by the Federal Reserve. These rules are discussed in the "Supervision and Regulation" section in Item 1, "Business" in the Company's 2019 10-K.

The following table presents the Company's and the Bank's measures of capital as of the dates presented and the capital guidelines established by the Federal Reserve for the Company and the Bank. We manage our capital levels for both the Company and the Bank to consistently maintain these measurements in excess of the Federal Reserve's minimum levels. All regulatory mandated ratios for characterization of the Bank as "well-capitalized" were exceeded as of March 31, 2020 and December 31, 2019.

64

Table 19

Capital Measurements

(Dollar amounts in thousands)

					As of March 31, 2020
					Minimum Requirement Plus Capital Conservation Buffer				Well-Capitalized(1)
	As of				Minimum		Excess Over Minimums		Minimum		Excess Over Minimums
	March 31,   2020		December 31,   2019
Bank regulatory capital ratios
Total capital to risk-weighted assets	10.97	%	11.28	%	10.50	%	$	69,192	10.00	%	$	142,770
Tier 1 capital to risk-weighted assets	10.10	%	10.51	%	8.50	%	$	234,907	8.00	%	$	308,485
CET1 to risk-weighted assets	10.10	%	10.51	%	7.00	%	$	455,641	6.50	%	$	529,219
Tier 1 capital to average assets	8.63	%	8.79	%	4.00	%	$	796,840	5.00	%	$	624,617
Company regulatory capital ratios
Total capital to risk-weighted assets	12.00	%	12.96	%	10.50	%	$	233,935	10.00	%	$	311,804
Tier 1 capital to risk-weighted assets	9.64	%	10.52	%	8.50	%	$	177,150	6.00	%	$	566,492
CET1 to risk-weighted assets	9.64	%	10.52	%	7.00	%	$	410,755	N/A		N/A
Tier 1 capital to average assets	8.60	%	8.81	%	4.00	%	$	803,183	N/A		N/A
Company tangible common equity ratios(2)(3)
Tangible common equity to tangible assets	7.97	%	8.81	%	N/A		N/A		N/A		N/A
Tangible common equity, excluding accumulated other comprehensive loss, to tangible assets	7.79	%	8.82	%	N/A		N/A		N/A		N/A
Tangible common equity to risk-weighted assets	9.63	%	10.51	%	N/A		N/A		N/A		N/A

N/A – Not applicable.

⁽¹⁾"Well-capitalized" minimum CET1 to risk-weighted assets and Tier 1 capital to average assets ratios are not formally defined under applicable banking regulations for bank holding companies.

⁽²⁾Ratios are not subject to formal Federal Reserve regulatory guidance.

⁽³⁾Tangible common equity ratios are non-GAAP financial measures. For a discussion of non-GAAP financial measures, see the section of this Item 2 titled "Non-GAAP Financial Information and Reconciliations."

Capital ratios decreased compared to December 31, 2019 as earnings were more than offset by the approximately 50 basis point impact of the Park Bank acquisition on all ratios, 15 basis point impact of stock repurchases on all ratios, as well as the impact of loan growth and securities purchases on risk-weighted assets.

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 20 basis points of CET1 and tier 1 capital. This election of the transition option is applicable only to regulatory capital computations under federal banking regulations and does not otherwise impact the financial statements prepared in accord with GAAP.

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

Stock Repurchase Program

On February 26, 2020, the Company announced a new stock repurchase program authorizing the discretionary repurchase of up to $200 million of its common stock. This program replaced the Company's prior $180 million stock repurchase program,

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which was set to expire in March 2020. The Company suspended repurchases in March as it shifted its capital deployment strategy in response to the COVID-19 pandemic. Prior to the suspension, the Company repurchased 1.2 million shares of its common stock at a total cost of $22.6 million during the quarter ended March 31, 2020.

Dividends

The Board approved a quarterly cash dividend of $0.14 per common share during the first quarter of 2020, an increase of 17% from the first quarter of 2019. This dividend represents the 149^th consecutive cash dividend paid by the Company since its inception in 1983.

NON-GAAP FINANCIAL INFORMATION AND RECONCILIATIONS

The Company's accounting and reporting policies conform to GAAP and general practices within the banking industry. As a supplement to GAAP, the Company provides non-GAAP performance results, which the Company believes are useful because they assist investors in assessing the Company's operating performance. These non-GAAP financial measures include earnings per share ("EPS"), adjusted, the efficiency ratio, return on average assets, adjusted, tax-equivalent net interest income (including its individual components), tax-equivalent net interest margin, tax-equivalent net interest margin, adjusted, noninterest expense, adjusted, return on average common equity, adjusted, tangible common equity to tangible assets, tangible common equity, excluding accumulated other comprehensive income ("AOCI"), to tangible assets, tangible common equity to risk-weighted assets, return on average tangible common equity, return on average tangible common equity, adjusted, non-accrual loans, excluding PCD loans, 30-89 days past due loans, excluding PCD loans, non-accrual loans to total loans, excluding PCD loans, non-performing loans to total loans, excluding PCD loans, non-performing assets to total loans plus foreclosed assets, excluding PCD loans, net loan charge-offs, excluding PCD loans, net loan charge-offs to average loans, excluding PCD loans, and CPPPLs to average corporate loans, excluding PCD and PCI loans.

The Company presents its EPS, efficiency ratio, return on average assets, return on average common equity, and return on average tangible common equity, all adjusted for certain significant transactions. These transactions include Delivering Excellence implementation costs (first quarter 2019), net securities losses (first quarter 2020), and acquisition and integration related expenses associated with completed and pending acquisitions (all periods). In addition, net OREO expense is excluded from the calculation of the efficiency ratio. Management believes excluding these transactions from our EPS, efficiency ratio, return on average assets, return on average common equity, and return on average tangible common equity may be useful in assessing the Company's underlying operational performance since these transactions do not pertain to its core business operations and their exclusion may facilitate better comparability between periods. Management believes that excluding acquisition and integration related expenses from these metrics may be useful to the Company, as well as analysts and investors, since these expenses can vary significantly based on the size, type, and structure of each acquisition. Additionally, management believes excluding these transactions from these metrics may enhance comparability for peer comparison purposes.

The Company presents noninterest expense, adjusted, which excludes Delivering Excellence implementation costs and acquisition and integration related expenses. 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.

The tax-equivalent adjustment to net interest income and net interest margin recognizes the income tax savings when comparing taxable and tax-exempt assets. Interest income and yields on tax-exempt securities and loans are presented using the current federal income tax rate of 21%. Management believes that it is standard practice in the banking industry to present net interest income and net interest margin on a fully tax-equivalent basis and that it may enhance comparability for peer comparison purposes. In addition, management believes that presenting tax-equivalent net interest margin, adjusted, may enhance comparability for peer comparison purposes and may be useful to the Company, as well as analysts and investors, since acquired loan accretion income may fluctuate based on the size of each acquisition, as well as from period to period.

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

The Company presents non-accrual loans, 30-89 days past due loans, non-accrual loans to total loans, non-performing loans to total loans, non-performing assets to total loans plus foreclosed assets, net loan charge-offs, net loan charge-offs to average loans, and CPPPLs to average corporate loans, all excluding PCD loans. Management believes excluding PCD loans is useful as it facilitates better comparability between periods as prior to the adoption of CECL on January 1, 2020, PCI loans with an accretable yield were considered current and were not included in past due and non-accrual loan totals and the portion of PCI

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loans deemed to be uncollectible was recorded as a reduction of the credit-related acquisition adjustment, which was netted within loans. Subsequent to adoption, PCD loans, including those previously classified as PCI, are included in past due and non-accrual loan totals and an allowance for credit losses on PCD loans is established as of the acquisition date and the PCD loans are no longer recorded net of a credit-related acquisition adjustment. PCD loans deemed to be uncollectible are recorded as a charge-off through the allowance for credit losses. Additionally, management believes excluding PCD loans from these metrics may enhance comparability for peer comparison purposes.

Although intended to enhance investors' understanding of the Company's business and performance, these non-GAAP financial measures should not be considered an alternative to GAAP. In addition, these non-GAAP financial measures may differ from those used by other financial institutions to assess their business and performance. See the previously provided tables and the following reconciliations for details on the calculation of these measures to the extent presented herein.

Non-GAAP Reconciliations

(Amounts in thousands, except per share data)

	Quarters Ended   March 31,
	2020			2019
EPS
Net income	$	19,606		$	46,058
Net income applicable to non-vested restricted shares	(192)			(403)
Net income applicable to common shares	19,414			45,655
Adjustments to net income:
Net securities losses	1,005			—
Tax effect of net securities losses	(251)			—
Acquisition and integration related expenses	5,472			3,691
Tax effect of acquisition and integration related expenses	(1,368)			(923)
Delivering Excellence implementation costs	—			258
Tax effect of Delivering Excellence implementation costs	—			(65)
Income tax benefits	—			—
Total adjustments to net income, net of tax	4,858			2,961
Net income applicable to common shares, adjusted	$	24,272		$	48,616
Weighted-average common shares outstanding:
Weighted-average common shares outstanding (basic)	109,922			105,770
Dilutive effect of common stock equivalents	443			—
Weighted-average diluted common shares outstanding	110,365			105,770
Basic EPS	$	0.18		$	0.43
Diluted EPS	$	0.18		$	0.43
Diluted EPS, adjusted	$	0.22		$	0.46
Return on Average Assets
Net income	$	19,606		$	46,058
Total adjustments to net income, net of tax(1)	4,858			2,961
Net income, adjusted	$	24,464		$	49,019
Average assets	$	18,404,821		$	15,667,839
Return on average assets(2)(3)	0.43		%	1.19		%
Return on average assets, adjusted(1)(2)(3)	0.53		%	1.27		%
Note: Non-GAAP Reconciliations footnotes are located at the end of this section.

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	Quarters Ended   March 31,
	2020			2019
Return on Average Common and Tangible Common Equity
Net income applicable to common shares	$	19,414		$	45,655
Intangibles amortization	2,770			2,363
Tax effect of intangibles amortization	(693)			(591)
Net income applicable to common shares, excluding intangibles amortization	21,491			47,427
Total adjustments to net income, net of tax(1)	4,858			2,961
Net income applicable to common shares, excluding intangibles amortization, adjusted(1)	$	26,349		$	50,388
Average stockholders' common equity	$	2,415,157		$	2,138,281
Less: average intangible assets	(887,600)			(803,408)
Average tangible common equity	$	1,527,557		$	1,334,873
Return on average common equity(2)(3)	3.23		%	8.66		%
Return on average common equity, adjusted(1)(2)(3)	4.03		%	9.22		%
Return on average tangible common equity(2)(3)	5.66		%	14.41		%
Return on average tangible common equity, adjusted(1)(2)(3)	6.94		%	15.31		%
Note: Non-GAAP Reconciliations footnotes are located at the end of this section.

	Quarters Ended   March 31,
	2020			2019
Efficiency Ratio Calculation
Noninterest expense	$	117,331		$	102,110
Less:
Net OREO expense	(420)			(681)
Acquisition and integration related expenses	(5,472)			(3,691)
Delivering Excellence implementation costs	—			(258)
Total	$	111,439		$	97,480
Tax-equivalent net interest income(2)	$	144,728		$	140,132
Noninterest income	39,362			34,906
Less: net securities losses	1,005			—
Total	$	185,095		$	175,038
Efficiency ratio	60.21		%	55.69		%
Note: Non-GAAP Reconciliations footnotes are located at the end of this section.

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	As of
	March 31, 2020			December 31, 2019
Tangible Common Equity
Stockholders' equity	$	2,435,707		$	2,370,793
Less: goodwill and other intangible assets	(935,241)			(875,262)
Tangible common equity	1,500,466			1,495,531
Less: AOCI	(35,323)			1,954
Tangible common equity, excluding AOCI	$	1,465,143		$	1,497,485
Total assets	$	19,753,300		$	17,850,397
Less: goodwill and other intangible assets	(935,241)			(875,262)
Tangible assets	$	18,818,059		$	16,975,135
Risk-weighted assets	$	15,573,684		$	14,225,444
Tangible common equity to tangible assets	7.97		%	8.81		%
Tangible common equity, excluding AOCI, to tangible assets	7.79		%	8.82		%
Tangible common equity to risk-weighted assets	9.63		%	10.51		%

Footnotes for non-GAAP reconciliations

⁽¹⁾Adjustments to net income for each period presented are detailed in the EPS non-GAAP reconciliation above.

⁽²⁾Presented on a tax-equivalent basis, assuming the federal income tax rate of 21%.

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

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ITEM 3. QUANTITATIVE AND QUALITATIVE

DISCLOSURES ABOUT MARKET RISK

Market risk is the risk of loss arising from adverse changes in the fair value of financial instruments due to changes in interest rates, exchange rates, and equity prices. Interest rate risk is our primary market risk and is the result of repricing, basis, and option risk. A description and analysis of our interest rate risk management policies is included in Part II, Item 7A, "Quantitative and Qualitative Disclosures about Market Risk," in our 2019 10-K.

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

Net Interest Income Sensitivity

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

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

The Company's current simulation analysis indicates we would benefit from rising interest rates. Interest-earning assets consist of short and long-term products. Excluding non-accrual loans, and including the impact of hedging certain corporate variable rate loans using interest rate swaps through which the Company receives fixed amounts and pays variable amounts, 46% of the loan portfolio consisted of fixed rate loans and 54% were floating rate loans as of March 31, 2020, compared to 49% and 51% at December 31, 2019. See Note 12 of "Notes to the Condensed Consolidated Financial Statements" in Part I, Item 1 of this Form 10-Q for additional detail regarding interest rate swaps.

As of March 31, 2020, investments, consisting of securities and interest-bearing deposits in other banks, are more heavily weighted toward fixed rate securities at 94% of the total compared to 6% for floating rate interest-bearing deposits in other banks, compared to 97% of the total compared to 3% for the floating rate interest-bearing deposits in other banks at December 31, 2019. Fixed rate loans are most sensitive to the 3-5 year portion of the yield curve and the Company limits its loans with maturities that extend beyond 5 years. The majority of floating rate loans are indexed to the short-term LIBOR or Prime rates. The amount of floating rate loans with active interest rate floors was not meaningful as of March 31, 2020 or December 31, 2019. On the liability side of the balance sheet, 79% and 77% of deposits as of March 31, 2020 and December 31, 2019 were demand deposits or interest-bearing core deposits, which either do not pay interest or the interest rates are expected to change at a slower pace than short-term interest rates.

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Analysis of Net Interest Income Sensitivity

(Dollar amounts in thousands)

	Immediate Change in Rates
	+300			+200			+100			-100
As of March 31, 2020
Dollar change	$	112,134		$	75,112		$	38,887		$	(49,922)
Percent change	19.2		%	12.9		%	6.7		%	(8.5)		%
As of December 31, 2019
Dollar change	$	59,842		$	40,687		$	21,525		$	(32,217)
Percent change	10.3		%	7.0		%	3.7		%	(5.6)		%

The sensitivity of estimated net interest income to an instantaneous parallel shift in interest rates is reflected as both dollar and percentage changes. This table illustrates that an instantaneous 100 basis point rise in interest rates as of March 31, 2020 would increase net interest income by $38.9 million, or 6.7%, over the next twelve months compared to no change in interest rates. This same measure was $21.5 million, or 3.7%, as of December 31, 2019.

Overall, interest rate risk volatility as of March 31, 2020 compared to December 31, 2019 was higher due to an increase in the mix of floating rate loans and fixed FHLB advances, as well as the impact of recently declining market interest rates which limits our capacity to lower interest-bearing deposit rates further.

ITEM 4. CONTROLS AND PROCEDURES

As of the end of the period covered by this report (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 March 31, 2020. While the outcome of any legal proceeding is inherently uncertain, based on information currently available, the Company's management does not expect that any liabilities arising from pending legal matters will have a material adverse effect on the Company's business, financial condition, or results of operations.

ITEM 1A. RISK FACTORS

A discussion of certain risks and uncertainties faced by the Company is provided in the section entitled "Risk Factors" in the Company's 2019 10-K. These risks and uncertainties are not exhaustive. Additional risks and uncertainties are discussed in the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this report, the 2019 10-K, and the Company's other filings made with the SEC, as well as in other sections of such reports. The following risk factor represents material updates and additions to, and should be read together with, the risk factors previously disclosed in the 2019 10-K.

The Company's business, financial condition, liquidity, capital and results of operations have been, and will likely continue to be, adversely affected by the COVID-19 pandemic.

The COVID-19 pandemic has created economic and financial disruptions that have adversely affected, and are likely to continue to adversely affect, the Company's business, financial condition, liquidity, capital and results of operations. The extent to which the COVID-19 pandemic will continue to negatively affect the Company's business, financial condition, liquidity, capital and results of operations will depend on future developments, which are highly uncertain and cannot be predicted and many of which are outside of the Company's control, including the scope and duration of the pandemic, the continued

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effectiveness of the Company's business continuity plan including work-from-home arrangements and staffing in operational facilities, the direct and indirect impact of the pandemic on the Company's employees, clients, counterparties and service providers, as well as other market participants, and actions taken by governmental authorities and other third parties in response to the pandemic.

Among other things, the COVID-19 pandemic has contributed to, and is likely to continue to contribute to:

•Increased unemployment and decreased consumer confidence and business generally, leading to an increased risk of loan delinquencies, defaults and foreclosures.

•Ratings downgrades, credit deterioration and defaults in many industries, including, but not limited to, hospitality, transportation and commercial real estate.

•A decrease in the rates and yields on U.S. Treasury securities, which may lead to further decreased net interest income.

•Volatility in financial and capital markets, interest rates and exchange rates.

•Significant draws on credit lines, including syndicated credit lines, as customers and clients seek to increase liquidity.

•Declines in collateral values.

•Increased demands on capital and liquidity, leading the Company to suspend purchases of its common stock in order to meet client needs.

•A reduction in the value of the assets that the Company manages or otherwise administers or services for others, affecting related fee income and demand for the Company's services.

•Heightened cybersecurity, information security and operational risks as cybercriminals attempt to profit from the disruption given increased online and remote activity, including as a result of work-from-home arrangements.

•Disruptions to business operations at counterparties and service providers.

•Decreased demands for our products and services.

As a result, our credit, operational and other risks are generally expected to increase until the pandemic subsides.

In addition, our own business operations are at risk of disruption if significant portions of our workforce are unable to work effectively, including because of illness, quarantines, government actions, failures in systems or technology that disrupt work-from-home arrangements or other effects of the pandemic, or if we are unable to keep our branches open, including because of risk of infection. We have already taken action to reduce operating hours at our branches and to eliminate lobby services (other than by appointment).

Governmental authorities have taken unprecedented measures both to contain the spread of the COVID-19 pandemic, including shelter in place orders, business limitations and other shutdowns, which have severely restricted economic activity, and to provide economic assistance to individual households and businesses, stabilize the markets and support economic growth. The success of these measures is unknown and they may not be sufficient to fully mitigate the negative impact of the COVID-19 pandemic. Additionally, some measures, such as payment deferrals on mortgage and other loans, suspension of certain foreclosures, repossessions and other loan collection activity, continuation of certain fee assistance programs and other client accommodations may have a negative impact on the Company's business, financial condition, liquidity and results of operations. If such measures are not effective in mitigating the effects of COVID-19 on our borrowers, or if such measures exacerbate the effects of COVID-19 on our borrowers, we may also experience higher rates of default and increased credit losses in future periods. The Company also faces an increased risk of litigation and governmental and regulatory scrutiny as a result of the effects of the COVID-19 pandemic on market and economic conditions and actions governmental authorities take in response to those conditions. Furthermore, various government programs such as the Paycheck Protection Program are complex and our participation may lead to litigation and governmental, regulatory and third party scrutiny, negative publicity and damage to our reputation.

The length of the pandemic and the efficacy of the extraordinary measures being put in place to address it are unknown. There are no comparable recent events that provide guidance as to the economic recovery from effects of the pandemic or the effect the spread of COVID-19 as a global pandemic may have. Much of the impact from COVID-19 will occur after March 31, 2020, and as a result of the pandemic, the Company has experienced and expects to continue to experience draws on lines of credit, reduced net interest income and net interest margin, reduced revenues in its fee-based businesses, and increased client defaults, including defaults on unsecured loans, resulting in overall declines in credit quality and higher credit loss expense. Even after the pandemic subsides, the U.S. economy may continue to experience a recession, and the Company anticipates that its businesses would be materially and adversely affected by a prolonged recession. To the extent the pandemic adversely affects the Company's business, financial condition, liquidity or results of operations, it may also have the effect of heightening many of the other risks described in the section entitled "Risk Factors" in the 2019 10-K and the Company's other filings made with the SEC, as well as in other sections of those reports.

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

The following table summarizes the Company's monthly common stock repurchases during the first quarter of 2020. The Board approved a stock repurchase program, which was announced on March 19, 2019, under which the Company was authorized to repurchase up to $180 million of its outstanding common stock. The Company repurchased $11.1 million of its common stock under this program through February 19, 2020. On February 19, 2020, the Board approved a new stock repurchase program, under which the Company is authorized to repurchase up to $200 million of its outstanding common stock through December 31, 2021. This new stock repurchase program replaces the prior $180 million program, which was scheduled to expire in March 2020. The Company suspended repurchases in March as it shifted its capital deployment strategy in response to the COVID-19 pandemic. Prior to this action, the Company repurchased $11.5 million of its common stock under the program through March 31, 2020, for a total of $22.6 million for the first quarter of 2020.

Issuer Purchases of Equity Securities

	Total Number of Shares Purchased(1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of a Publicly Announced Plan or Program	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plan or Program
January 1 - January 31, 2020	73,000	$	20.08	73,000	$	144,606,649
February 1 - February 29, 2020	855,378	20.50		735,000	194,479,653
March 1 - March 31, 2020	366,893	16.60		363,000	188,458,427
Total	1,295,271	$	19.37	1,171,000

⁽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
10.1(1)	Form of Performance Shares Award Agreement between the Company and certain officers of the Company pursuant to the First Midwest Bancorp, Inc. 2018 Stock and Incentive Plan.
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1(2)	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2(2)	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the inline XBRL document.
101.SCH	Inline XBRL Taxonomy Extension Schema Document
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104	Cover Page Interactive Data File (formatted as inline XBRL and included in Exhibit 101)

⁽¹⁾Management contract or compensatory plan or arrangement.

⁽²⁾Furnished, not filed.

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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: May 8, 2020

* Duly authorized to sign on behalf of the registrant.

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