UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________

FORM 10-Q

(Mark One)

☒	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 2021
	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 001-39320

______________________

(Exact name of registrant as specified in its charter)

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

8750 West Bryn Mawr Avenue, Suite 1300

Chicago, Illinois 60631-3655

(Address of principal executive offices) (zip code)

______________________

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

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

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $0.01 par value	FMBI	The NASDAQ Stock Market
Depositary shares, each representing a 1/40th interest in a share of 7.000% Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series A	FMBIP	The NASDAQ Stock Market
Depositary shares, each representing a 1/40th interest in a share of 7.000% Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series C	FMBIO	The NASDAQ Stock Market

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

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

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

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

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

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

As of July 30, 2021, there were 114,298,897 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	8
	Notes to the Condensed Consolidated Financial Statements	10
ITEM 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	39
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	69
ITEM 4.	Controls and Procedures	70
Part II.	OTHER INFORMATION
ITEM 1.	Legal Proceedings	70
ITEM 1A.	Risk Factors	70
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	74
ITEM 6.	Exhibits	75

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (Unaudited)

FIRST MIDWEST BANCORP, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Amounts in thousands, except per share data)

					June 30, 2021		December 31, 2020
Assets					(Unaudited)
Cash and due from banks					$	232,989	$	196,364
Interest-bearing deposits in other banks					1,312,412		920,880
Equity securities, at fair value					112,977		76,404
Securities available-for-sale, at fair value					3,156,194		3,096,408
Securities held-to-maturity, at amortized cost, net					11,593		12,071
Federal Home Loan Bank ("FHLB") and Federal Reserve Bank ("FRB") stock, at cost					106,890		117,420
Loans					15,035,219		14,751,232
Allowance for loan losses					(214,601)		(239,017)
Net loans					14,820,618		14,512,215
Other real estate owned ("OREO")					5,289		8,253
Premises, furniture, and equipment, net					125,837		132,045
Investment in bank-owned life insurance ("BOLI")					300,537		301,101
Goodwill and other intangible assets					926,176		932,764
Accrued interest receivable and other assets					513,912		532,753
Total assets					$	21,625,424	$	20,838,678
Liabilities
Noninterest-bearing deposits					$	6,187,478	$	5,797,899
Interest-bearing deposits					10,845,405		10,214,565
Total deposits					17,032,883		16,012,464
Borrowed funds					1,299,424		1,546,414
Senior and subordinated debt					235,178		234,768
Accrued interest payable and other liabilities					353,791		355,026
Total liabilities					18,921,276		18,148,672
Stockholders' Equity
Preferred stock					230,500		230,500
Common stock					1,254		1,254
Additional paid-in capital					1,269,192		1,275,492
Retained earnings					1,444,625		1,388,525
Accumulated other comprehensive income (loss), net of tax					(5,941)		26,379
Treasury stock, at cost					(235,482)		(232,144)
Total stockholders' equity					2,704,148		2,690,006
Total liabilities and stockholders' equity					$	21,625,424	$	20,838,678
	June 30, 2021				December 31, 2020
	(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	231		125,376		231		125,367
Shares outstanding	231		114,177		231		114,296
Treasury shares	—		11,199		—		11,071

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   June 30,				Six Months Ended   June 30,
	2021		2020		2021		2020
Interest Income
Loans	$	136,104	$	140,819	$	269,878	$	288,605
Investment securities	16,217		20,386		31,924		40,624
Other short-term investments	1,679		839		3,348		3,042
Total interest income	154,000		162,044		305,150		332,271
Interest Expense
Deposits	3,131		10,077		6,588		27,194
Borrowed funds	3,112		3,156		6,219		8,997
Senior and subordinated debt	3,469		3,577		6,940		7,271
Total interest expense	9,712		16,810		19,747		43,462
Net interest income	144,288		145,234		285,403		288,809
Provision for loan losses	—		32,649		6,098		72,181
Net interest income after provision for loan losses	144,288		112,585		279,305		216,628
Noninterest Income
Wealth management fees	14,555		11,942		28,704		24,303
Service charges on deposit accounts	10,778		9,125		20,758		20,906
Mortgage banking income	6,749		3,477		16,936		5,265
Card-based fees	4,764		3,180		9,320		7,148
Capital market products income	1,954		694		4,043		5,416
Other service charges, commissions, and fees	2,823		2,078		5,584		4,760
Net securities losses	—		—		—		(1,005)
Other income	4,647		2,495		6,728		5,560
Total noninterest income	46,270		32,991		92,073		72,353
Noninterest Expense
Salaries and employee benefits	64,211		63,672		130,612		126,531
Net occupancy and equipment expense	13,654		15,116		28,406		29,343
Technology and related costs	10,453		9,853		20,737		18,401
Professional services	7,568		8,880		15,627		19,270
Net OREO expense	160		126		749		546
Other expenses	17,569		17,434		34,139		32,849
Acquisition and integration related expenses	7,773		5,249		8,018		10,721
Optimization costs	31		—		1,556		—
Total noninterest expense	121,419		120,330		239,844		237,661
Income before income tax expense	69,139		25,246		131,534		51,320
Income tax expense	18,018		6,182		35,390		12,650
Net income	$	51,121	$	19,064	$	96,144	$	38,670
Preferred dividends	(4,034)		(1,037)		(8,068)		(1,037)
Net income applicable to unvested restricted shares	(521)		(187)		(1,007)		(379)
Net income applicable to common shareholders	$	46,566	$	17,840	$	87,069	$	37,254
Per Common Share Data
Basic earnings per common share	$	0.41	$	0.16	$	0.77	$	0.33
Diluted earnings per common share	$	0.41	$	0.16	$	0.77	$	0.33
Dividends declared per common share	$	0.14	$	0.14	$	0.28	$	0.28
Weighted-average common shares outstanding	112,865		113,145		112,980		111,533
Weighted-average diluted common shares outstanding	113,640		113,336		113,737		111,872

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   June 30,				Six Months Ended   June 30,
	2021		2020		2021		2020
Net income	$	51,121	$	19,064	$	96,144	$	38,670
Securities Available-for-Sale
Unrealized holding gains (losses):
Before tax	24,603		(1,719)		(40,542)		60,835
Tax effect	(6,793)		381		11,180		(16,916)
Net of tax	17,810		(1,338)		(29,362)		43,919
Reclassification of net losses included in net income:
Before tax	—		—		—		(1,005)
Tax effect	—		—		—		282
Net of tax	—		—		—		(723)
Net unrealized holding gains (losses)	17,810		(1,338)		(29,362)		43,196
Derivative Instruments
Unrealized holding losses:
Before tax	(2,287)		(7,300)		(4,082)		(17,340)
Tax effect	632		2,042		1,124		4,825
Net of tax	(1,655)		(5,258)		(2,958)		(12,515)
Total other comprehensive income (loss)	16,155		(6,596)		(32,320)		30,681
Total comprehensive income (loss)	$	67,276	$	12,468	$	63,824	$	69,351

	Accumulated Unrealized Gain (Loss) on Securities Available- for-Sale		Accumulated Unrealized Gain (Loss) on Derivative Instruments		Unrecognized Net Pension Costs		Total Accumulated Other Comprehensive Income (Loss)
Balance at December 31, 2019	$	15,808	$	819	$	(18,581)	$	(1,954)
Other comprehensive income	43,196		(12,515)		—		30,681
Balance at June 30, 2020	$	59,004	$	(11,696)	$	(18,581)	$	28,727
Balance at December 31, 2020	$	38,328	$	10,179	$	(22,128)	$	26,379
Other comprehensive loss	(29,362)		(2,958)		—		(32,320)
Balance at June 30, 2021	$	8,966	$	7,221	$	(22,128)	$	(5,941)

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	Preferred Stock		Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Total
Quarter Ended June 30, 2020
Beginning balance	114,213	$	—	$	1,253	$	1,274,935	$	1,357,395	$	35,323	$	(233,199)	$	2,435,707
Net income	—	—		—		—		19,064		—		—		19,064
Other comprehensive loss	—	—		—		—		—		(6,596)		—		(6,596)
Preferred dividends	—	—		—		—		(1,037)		—		—		(1,037)
Common dividends declared   ($0.14 per common share)	—	—		—		—		(16,015)		—		—		(16,015)
Preferred stock issued	—	230,500		—		(9,188)		—		—		—		221,312
Common stock issued	6	—		—		79		—		—		—		79
Restricted stock activity	64	—		—		(912)		—		—		943		31
Treasury stock issued to   benefit plans	(7)	—		—		(22)		—		—		(67)		(89)
Share-based compensation   expense	—	—		—		3,755		—		—		—		3,755
Balance at June 30, 2020	114,276	$	230,500	$	1,253	$	1,268,647	$	1,359,407	$	28,727	$	(232,323)	$	2,656,211
Quarter Ended June 30, 2021
Beginning balance	114,196	$	230,500	$	1,254	$	1,265,156	$	1,413,517	$	(22,096)	$	(235,016)	$	2,653,315
Net income	—	—		—		—		51,121		—		—		51,121
Other comprehensive income	—	—		—		—		—		16,155		—		16,155
Preferred dividends	—	—		—		—		(4,034)		—		—		(4,034)
Common dividends declared   ($0.14 per common share)	—	—		—		—		(15,979)		—		—		(15,979)
Repurchases of common stock	—	—		—		—		—		—		—		—
Common stock issued	4	—		—		83		—		—		—		83
Restricted stock activity	(22)	—		—		347		—		—		(452)		(105)
Treasury stock issued to   benefit plans	(1)	—		—		(2)		—		—		(14)		(16)
Share-based compensation   expense	—	—		—		3,608		—		—		—		3,608
Balance at June 30, 2021	114,177	$	230,500	$	1,254	$	1,269,192	$	1,444,625	$	(5,941)	$	(235,482)	$	2,704,148

6

FIRST MIDWEST BANCORP, INC.

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

(Amounts in thousands, except per share data)

(Unaudited)

	Common Shares Outstanding	Preferred Stock		Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Total
Six Months Ended June 30, 2020
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(1)	—	—		—		—		(26,821)		—		—		(26,821)
Net income	—	—		—		—		38,670		—		—		38,670
Other comprehensive income	—	—		—		—		—		30,681		—		30,681
Preferred dividends	—	—		—		—		(1,037)						(1,037)
Common dividends declared   ($0.28 per common share)	—	—		—		—		(32,017)		—		—		(32,017)
Repurchases of common   stock	(1,171)	—		—		—		—		—		(22,557)		(22,557)
Acquisitions, net of issuance   costs	4,930	—		49		71,834		—		—		—		71,883
Preferred stock issued	—	230,500		—		(9,188)		—		—		—		221,312
Common stock issued	43	—		—		251		—		—		679		930
Restricted stock activity	513	—		—		(13,180)		—		—		10,045		(3,135)
Treasury stock issued to   benefit plans	(11)	—		—		(21)		—		—		(147)		(168)
Share-based compensation   expense	—	—		—		7,677		—		—		—		7,677
Balance at June 30, 2020	114,276	$	230,500	$	1,253	$	1,268,647	$	1,359,407	$	28,727	$	(232,323)	$	2,656,211
Six Months Ended June 30, 2021
Beginning balance	114,296	$	230,500	$	1,254	$	1,275,492	$	1,388,525	$	26,379	$	(232,144)	$	2,690,006
Net income	—	—		—		—		96,144		—				96,144
Other comprehensive loss	—	—		—		—		—		(32,320)		—		(32,320)
Preferred dividends	—	—		—		—		(8,068)		—		—		(8,068)
Common dividends declared   ($0.28 per common share)	—	—		—		—		(31,976)		—		—		(31,976)
Repurchases of common   stock	(715)	—				—				—		(14,929)		(14,929)
Common stock issued	69	—		—		56		—		—		1,043		1,099
Restricted stock activity	526	—		—		(14,534)		—		—		10,532		(4,002)
Treasury stock issued to   benefit plans	1	—		—		21		—		—		16		37
Share-based compensation   expense	—	—		—		8,157		—		—		—		8,157
Balance at June 30, 2021	114,177	$	230,500	$	1,254	$	1,269,192	$	1,444,625	$	(5,941)	$	(235,482)	$	2,704,148

(1)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.

See accompanying unaudited notes to the condensed consolidated financial statements.

7

FIRST MIDWEST BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollar amounts in thousands)

(Unaudited)

	Six Months Ended   June 30,
	2021		2020
Operating Activities
Net income	$	96,144	$	38,670
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	6,098		72,181
Depreciation of premises, furniture, and equipment	7,529		8,397
Net amortization of premium on securities	10,243		10,914
Net securities losses	—		1,005
Gains on sales of 1-4 family mortgages and corporate loans held-for-sale	(16,444)		(7,230)
Net losses on sales and valuation adjustments of OREO	67		128
Amortization of the FDIC indemnification asset	—		892
Net (gains) losses on sales and valuation adjustments of premises, furniture, and equipment	(731)		213
BOLI income	(3,481)		(3,798)
Share-based compensation expense	8,157		7,677
Tax benefit related to share-based compensation	196		148
Amortization of other intangible assets	5,605		5,590
Originations of mortgage loans held-for-sale	(468,530)		(297,019)
Proceeds from sales of mortgage loans held-for-sale	508,076		292,410
Net increase in equity securities	(36,573)		(1,818)
Net decrease (increase) in accrued interest receivable and other assets	2,347		(124,850)
Net (decrease) increase in accrued interest payables and other liabilities	(642)		12,871
Net cash provided by operating activities	118,061		16,381
Investing Activities
Proceeds from maturities, repayments, and calls of securities available-for-sale	561,493		497,430
Proceeds from sales of securities available-for-sale	—		39,095
Purchases of securities available-for-sale	(672,064)		(914,234)
Proceeds from maturities, repayments, and calls of securities held-to-maturity	478		2,467
Purchases of securities held-to-maturity	—		(18)
Net purchases of FHLB stock	10,530		(33,103)
Net increase in loans	(312,149)		(1,360,147)
Premiums paid on BOLI, net of proceeds from claims	4,045		2,997
Proceeds from sales of OREO	2,897		230
Proceeds from sales of premises, furniture, and equipment	2,757		—
Purchases of premises, furniture, and equipment	(3,347)		(4,647)
Net cash received from acquisition	—		142,282
Net cash used in investing activities	(405,360)		(1,627,648)
Financing Activities
Net increase in deposit accounts	1,020,419		1,456,302
Net (decrease) increase in borrowed funds	(246,990)		634,905
Net proceeds from the issuance of preferred stock	—		221,312
Repurchases of common stock	(14,929)		(22,557)
Cash dividends paid	(40,085)		(32,480)
Restricted stock activity	(2,959)		(3,135)
Net cash provided by financing activities	715,456		2,254,347
Net increase in cash and cash equivalents	428,157		643,080
Cash and cash equivalents at beginning of period	1,117,244		299,221
Cash and cash equivalents at end of period	$	1,545,401	$	942,301

8

FIRST MIDWEST BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS – (Continued)

(Dollar amounts in thousands)

(Unaudited)

	Six Months Ended   June 30,
	2021		2020
Supplemental Disclosures of Cash Flow Information:
Income taxes paid	$	19,225	$	587
Interest paid to depositors and creditors	20,000		46,331
Dividends declared, but unpaid	15,821		15,857
Stock issued for acquisitions, net of issuance costs	—		71,883
Non-cash transfers of loans to OREO	—		121
Non-cash transfers of loans held-for-investment to loans held-for-sale	(14,157)		2,193
See accompanying unaudited notes to the condensed consolidated financial statements.

9

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation – The accompanying unaudited condensed consolidated interim financial statements ("consolidated financial statements") of First Midwest Bancorp, Inc. (the "Company"), a Delaware corporation, were prepared in accordance with the rules and regulations of the Securities and Exchange Commission ("SEC") for quarterly reports on Form 10-Q and reflect all adjustments that management deems necessary for the fair presentation of the financial position and results of operations for the periods presented. The results of operations for the quarter and six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.

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 2020 Annual Report on Form 10-K ("2020 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, 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 2020 10-K.

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

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

Acquired Loans – Acquired loans consist of all loans acquired in business combinations and 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 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.

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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.

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, consumer secured, 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.

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,

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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.

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.

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

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

2. RECENT ACCOUNTING PRONOUNCEMENTS AND OTHER GUIDANCE

Adopted Accounting Pronouncements

Changes to the Disclosure Requirements for Defined Benefit Plans: In August of 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("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. The adoption of this guidance on January 1, 2021 did not 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. The adoption of this guidance on January 1, 2021 did not materially impact the Company's financial condition, results of operations, or liquidity.

Accounting Pronouncements Pending Adoption

Reference Rate Reform: In March of 2020, the FASB issued ASU 2020-04 and in January of 2021, the FASB issued 2021-01, both of which provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued by reference rate reform, if certain criteria are met. This guidance is effective upon issuance as of March 12, 2020 and generally can be applied through December 31, 2022. Management continues to monitor efforts and evaluate the impact of reference rate reform, including this guidance and determining its impact on the Company's financial condition, results of operations, and liquidity.

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3. ACQUISITIONS

Pending Merger of Equals

On June 1, 2021, the Company and Old National Bancorp ("Old National"), the holding company for Old National Bank, jointly announced they have entered into a definitive merger agreement to combine in an all-stock merger of equals transaction to create a premier Midwestern bank with approximately $45 billion in combined assets. The merger agreement, which has been unanimously approved by the boards of directors of both companies, provides for a fixed exchange ratio whereby holders of Company common stock will receive 1.1336 shares of Old National common stock for each share of Company common stock they own, other than certain shares held by the Company or Old National. In addition, the merger agreement provides that holders of Company depositary shares representing a 1/40th interest in a share of the Company's 7.000% Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series A or Series C, will receive an equal amount of Old National depositary shares each representing a 1/40th interest in a share of a corresponding new series of Old National preferred stock having terms that are not materially less favorable than the Company preferred stock. The headquarters of the surviving corporation and the main office of the surviving bank will be located in Evansville, Indiana and the name of the surviving corporation and surviving bank will be Old National Bancorp and Old National Bank, respectively. The Commercial Banking and Consumer Banking operations of the surviving bank will be headquartered in Chicago, Illinois. Michael Scudder, Chairman and Chief Executive Officer ("CEO") of the Company, will serve as the Executive Chairman, and Jim Ryan, Chairman and CEO of Old National Bancorp, will maintain his role as CEO. As of the date of announcement, the overall transaction market value was approximately $6.5 billion. The transaction is subject to customary regulatory and shareholder approvals and the completion of various closing conditions and is anticipated to close in late 2021 or early 2022. The Company will hold a special meeting of its stockholders to vote on the merger on September 15, 2021.

Completed Acquisition

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 $687.9 million of loans, net of fair value adjustments. Under the terms of the merger agreement, on March 9, 2020, each outstanding share of Bankmanagers common stock was exchanged for 29.9675 shares of Company common stock, plus $623.02 of cash (of which $346.00 per share was paid by Bankmanagers to its shareholders by a special cash dividend immediately prior to closing). This resulted in merger consideration of $174.4 million, which consisted of 4.9 million shares of Company common stock and $102.5 million of cash. Goodwill of $59.6 million associated with the acquisition was recorded by the Company. All Park Bank operating systems were converted to the Company's operating platform during the second quarter of 2020.

During the first quarter of 2021, the Company finalized the fair value adjustments associated with the Bankmanagers transaction, which required measurement period adjustments to goodwill. These adjustments were 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 transaction as of the acquisition date. The assets acquired and liabilities assumed, both intangible and tangible, were recorded at their estimated fair values as of the acquisition date and have been accounted for under the acquisition method of accounting.

Acquisition Activity

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

	Park Bank
	March 9, 2020
Assets
Cash and due from banks and interest-bearing deposits in other banks	$	244,781
Securities available-for-sale	136,856
Securities held-to-maturity	300
Loans	687,923
OREO	2,276
Goodwill	59,649
Other intangible assets	3,068
Premises, furniture, and equipment	2,550
Accrued interest receivable and other assets	13,502
Total assets	$	1,150,905
Liabilities
Noninterest-bearing deposits	$	356,050
Interest-bearing deposits	594,026
Total deposits	950,076
Borrowed funds	11,532
Accrued interest payable and other liabilities	14,915
Total liabilities	976,523
Consideration Paid
Common stock (2020 – 4,930,231, shares issued at $14.58 per share)	71,883
Cash paid	102,499
Total consideration paid	174,382
	$	1,150,905

Expenses related to the acquisition and integration of completed and pending transactions are reported as a separate component within noninterest expense in the Condensed Consolidated Statements of Income. For the quarter and six months ended June 30, 2021, these expenses totaled $7.8 million and $8.0 million, respectively, and, for the same periods in 2020, these expenses totaled $5.2 million and $10.7 million, respectively.

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4. SECURITIES

The significant accounting policies related to securities are presented in Note 1, "Summary of Significant Accounting Policies" to the Consolidated Financial Statements in the Company's 2020 10-K.

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

Securities Portfolio

(Dollar amounts in thousands)

	As of June 30, 2021								As of December 31, 2020
	Amortized Cost		Gross Unrealized				Fair  Value		Amortized Cost		Gross Unrealized				Fair  Value
			Gains		Losses						Gains		Losses
Securities Available-for-Sale
U.S. treasury securities	$	1,000	$	3	$	—	$	1,003	$	12,001	$	50	$	—	$	12,051
U.S. agency securities	612,173		1,996		(15,372)		598,797		654,321		3,129		(4,976)		652,474
Collateralized mortgage obligations   ("CMOs")	1,336,291		16,936		(13,601)		1,339,626		1,415,312		27,529		(4,323)		1,438,518
Other mortgage-backed securities   ("MBSs")	808,967		9,762		(4,368)		814,361		566,830		14,650		(640)		580,840
Municipal securities	212,308		9,822		(229)		221,901		224,446		11,573		(4)		236,015
Corporate debt securities	173,069		7,451		(14)		180,506		170,570		6,210		(270)		176,510
Total securities available-for-sale	$	3,143,808	$	45,970	$	(33,584)	$	3,156,194	$	3,043,480	$	63,141	$	(10,213)	$	3,096,408
Securities Held-to-Maturity
Municipal securities	$	11,593	$	—	$	(468)	$	11,125	$	12,291	$	—	$	(385)	$	11,906
Allowance for securities held-to-   maturity	(220)						$	(220)	(220)						$	(220)
Total securities held-to-maturity,   net	$	11,373	$	—	$	(468)	$	10,905	$	12,071	$	—	$	(385)	$	11,686
Equity Securities							$	112,977							$	76,404

Accrued interest receivable on the securities portfolio totaled $11.1 million and $11.9 million as of June 30, 2021 and December 31, 2020, 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 June 30, 2021
	Available-for-Sale				Held-to-Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
One year or less	$	94,281	$	94,626	$	1,971	$	1,891
After one year to five years	176,306		176,952		4,335		4,160
After five years to ten years	727,963		730,629		2,658		2,551
After ten years	—		—		2,629		2,523
Securities that do not have a single contractual maturity date	2,145,258		2,153,987		—		—
Total	$	3,143,808	$	3,156,194	$	11,593	$	11,125

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 $1.9 billion as of June 30, 2021 and $1.6 billion as of December 31, 2020. No securities held-to-maturity were pledged as of June 30, 2021 or December 31, 2020.

There were no realized gains (losses) on securities available-for-sale for the quarters ended June 30, 2021 and 2020. There were $1.0 million of realized losses for the six months ended June 30, 2020.

The following table presents the aggregate amount of unrealized losses and the aggregate related fair values of securities with unrealized losses as of June 30, 2021 and December 31, 2020.

Securities in an Unrealized Loss Position

(Dollar amounts in thousands)

		Less Than 12 Months				12 Months or Longer				Total
	Number of Securities	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
As of June 30, 2021
Securities Available-for-Sale
U.S. agency securities	64	$	376,464	$	13,721	$	51,780	$	1,651	$	428,244	$	15,372
CMOs	150	568,946		12,450		26,307		1,151		595,253		13,601
MBSs	62	265,493		3,739		31,417		629		296,910		4,368
Municipal securities	12	10,929		229		—		—		10,929		229
Corporate debt securities	1	—		—		3,212		14		3,212		14
Total	289	$	1,221,832	$	30,139	$	112,716	$	3,445	$	1,334,548	$	33,584
As of December 31, 2020
Securities Available-for-Sale
U.S. agency securities	48	$	253,841	$	4,764	$	14,932	$	212	$	268,773	$	4,976
CMOs	104	349,853		3,205		86,618		1,118		436,471		4,323
MBSs	19	69,838		550		12,307		90		82,145		640
Municipal securities	4	1,012		4		—		—		1,012		4
Corporate debt securities	3	8,100		105		9,513		165		17,613		270
Total	178	$	682,644	$	8,628	$	123,370	$	1,585	$	806,014	$	10,213

Substantially all of the Company's CMOs and other MBSs are either backed by U.S. government-owned agencies or issued by U.S. government-sponsored enterprises. Municipal securities are issued by municipal authorities, and the majority are supported by third-party insurance or some other form of credit enhancement. Management does not believe any of these securities with unrealized losses as of June 30, 2021 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
	June 30, 2021		December 31, 2020
Commercial and industrial	$	4,608,148	$	4,578,254
Agricultural	342,834		364,038
Commercial real estate:
Office, retail, and industrial	1,807,428		1,861,768
Multi-family	1,012,722		872,813
Construction	577,338		612,611
Other commercial real estate	1,461,370		1,481,976
Total commercial real estate	4,858,858		4,829,168
Total corporate loans, excluding Paycheck Protection Program ("PPP") loans	9,809,840		9,771,460
PPP loans	705,915		785,563
Total corporate loans	10,515,755		10,557,023
Home equity	629,367		761,725
1-4 family mortgages	3,287,773		3,022,413
Installment	602,324		410,071
Total consumer loans	4,519,464		4,194,209
Total loans	$	15,035,219	$	14,751,232
Deferred loan fees included in total loans	$	8,812	$	9,696
Overdrawn demand deposits included in total loans	9,582		8,444

Accrued interest receivable on the loan portfolio totaled $51.8 million and $56.7 million as of June 30, 2021 and December 31, 2020, 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 2020 10-K.

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Loan Sales

The following table presents loan sales and purchases for the quarters and six months ended June 30, 2021 and 2020.

Loan Sales and Purchases

(Dollar amounts in thousands)

	Quarters Ended   June 30,				Six Months Ended   June 30,
	2021		2020		2021		2020
Corporate loan sales
Proceeds from sales	$	291	$	295	$	17,227	$	4,598
Less book value of loans sold	286		289		17,177		4,477
Net gains on corporate loan sales(1)	5		6		50		121
1-4 family mortgage loan sales
Proceeds from sales	214,246		173,251		508,076		292,410
Less book value of loans sold	207,784		168,656		491,682		285,301
Net gains on 1-4 family mortgage loan sales(2)	6,462		4,595		16,394		7,109
Total net gains on loan sales	$	6,467	$	4,601	$	16,444	$	7,230
Corporate loan purchases(3)
Commercial and industrial	$	80,679	$	22,894	$	234,075	$	168,716
Office, retail, and industrial	—		—		7,438		—
Multi-family	11,880		—		26,129		—
Construction	894		3,258		1,036		3,897
Other commercial real estate	35,000		10,000		35,000		10,000
Total corporate loan purchases	$	128,453	$	36,152	$	303,678	$	182,613
Consumer loan purchases
Home equity	$	—	$	—	$	—	$	144,967
1-4 family mortgages	224,819		179,410		585,918		249,585
Installment	146,618		—		253,376		—
Total consumer loan purchases	$	371,437	$	179,410	$	839,294	$	394,552

(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 12, "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 June 30, 2021 and December 31, 2020, are presented in Note 1, "Summary of Significant Accounting Policies."

The following table presents the carrying amount of acquired loans as of June 30, 2021 and December 31, 2020.

Acquired Loans(1)

(Dollar amounts in thousands)

	As of June 30, 2021						As of December 31, 2020
	PCD		Non-PCD		Total		PCD		Non-PCD		Total
Acquired loans	$	177,111	$	916,633	$	1,093,744	$	212,021	$	1,198,818	$	1,410,839

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

The outstanding balance of PCD loans was $197.8 million as of June 30, 2021 and $247.3 million as of December 31, 2020.

19

Total accretion on acquired loans for the quarter and six months ended June 30, 2021 was $6.0 million and $13.1 million, respectively, and $7.0 million and $13.9 million for the same periods in 2020.

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 June 30, 2021 and December 31, 2020 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

(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 June 30, 2021
Commercial and industrial	$	4,569,389	$	8,168	$	30,591	$	38,759	$	4,608,148	$	45,158	$	392
Agricultural	339,070		—		3,764		3,764		342,834		7,135		—
Commercial real estate:
Office, retail, and industrial	1,788,557		2,368		16,503		18,871		1,807,428		19,484		—
Multi-family	1,009,401		—		3,321		3,321		1,012,722		3,415		—
Construction	574,329		40		2,969		3,009		577,338		2,969		—
Other commercial real estate	1,441,210		2,883		17,277		20,160		1,461,370		23,815		122
Total commercial real estate	4,813,497		5,291		40,070		45,361		4,858,858		49,683		122
Total corporate loans,   excluding PPP loans	9,721,956		13,459		74,425		87,884		9,809,840		101,976		514
PPP loans	705,915		—		—		—		705,915		—		—
Total corporate loans	10,427,871		13,459		74,425		87,884		10,515,755		101,976		514
Home equity	623,582		2,115		3,670		5,785		629,367		9,948		23
1-4 family mortgages	3,274,456		4,104		9,213		13,317		3,287,773		12,558		—
Installment	598,218		3,765		341		4,106		602,324		—		341
Total consumer loans	4,496,256		9,984		13,224		23,208		4,519,464		22,506		364
Total loans	$	14,924,127	$	23,443	$	87,649	$	111,092	$	15,035,219	$	124,482	$	878
As of December 31, 2020
Commercial and industrial	$	4,530,546	$	9,254	$	38,454	$	47,708	$	4,578,254	$	42,965	$	591
Agricultural	359,373		705		3,960		4,665		364,038		10,719		—
Commercial real estate:
Office, retail, and industrial	1,827,891		3,961		29,916		33,877		1,861,768		34,224		257
Multi-family	867,815		2,510		2,488		4,998		872,813		2,488		—
Construction	606,934		1,154		4,523		5,677		612,611		4,980		1,065
Other commercial real estate	1,448,258		15,015		18,703		33,718		1,481,976		25,824		434
Total commercial real estate	4,750,898		22,640		55,630		78,270		4,829,168		67,516		1,756
Total corporate loans,   excluding PPP loans	9,640,817		32,599		98,044		130,643		9,771,460		121,200		2,347
PPP loans	785,563		—		—		—		785,563		—		—
Total corporate loans	10,426,380		32,599		98,044		130,643		10,557,023		121,200		2,347
Home equity	750,263		5,563		5,899		11,462		761,725		10,795		956
1-4 family mortgages	3,009,564		5,296		7,553		12,849		3,022,413		10,530		115
Installment	404,831		4,263		977		5,240		410,071		—		977
Total consumer loans	4,164,658		15,122		14,429		29,551		4,194,209		21,325		2,048
Total loans	$	14,591,038	$	47,721	$	112,473	$	160,194	$	14,751,232	$	142,525	$	4,395

20

Allowance for Credit Losses

The Company maintains an allowance for credit losses at a level deemed adequate by management to absorb estimated losses expected in the existing loan portfolio. See Note 1, "Summary of Significant Accounting Policies," for the accounting policy for the allowance for credit losses. A rollforward of the allowance for credit losses by portfolio segment for the quarters and six months ended June 30, 2021 and 2020 is presented in the table below. PPP loans are excluded from this table as there is no allowance for credit losses associated with these loans because they are fully guaranteed by the U.S. Small Business Administration ("SBA").

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 June 30, 2021
Beginning balance	$	125,798	$	22,652	$	3,570	$	5,915	$	21,205	$	56,219	$	8,025	$	243,384
Charge-offs	(16,766)		(3,898)		(4)		(218)		(585)		(2,156)		—		(23,627)
Recoveries	2,033		20		2		10		126		678		—		2,869
Net charge-offs	(14,733)		(3,878)		(2)		(208)		(459)		(1,478)		—		(20,758)
Provision for loan   losses and other	5,331		(782)		(109)		(783)		(688)		(2,969)		600		600
Ending balance	$	116,396	$	17,992	$	3,459	$	4,924	$	20,058	$	51,772	$	8,625	$	223,226
Quarter Ended June 30, 2020
Beginning balance	$	113,733	$	25,856	$	3,689	$	11,297	$	18,554	$	46,819	$	6,753	$	226,701
Allowance established   for acquired PCD   loans	378		—		—		—		—		—		872		1,250
Charge-offs	(5,673)		(3,092)		(9)		(798)		(31)		(4,631)		—		(14,234)
Recoveries	820		6		—		—		12		473		—		1,311
Net charge-offs	(4,853)		(3,086)		(9)		(798)		(19)		(4,158)		—		(12,923)
Provision for loan   losses and other	14,719		1,671		1,631		1,023		3,327		10,278		—		32,649
Ending balance	$	123,977	$	24,441	$	5,311	$	11,522	$	21,862	$	52,939	$	7,625	$	247,677
Six Months Ended June 30, 2021
Beginning balance	$	119,954	$	24,078	$	5,709	$	6,674	$	24,309	$	58,293	$	8,025	$	247,042
Charge-offs	(19,607)		(8,375)		(4)		(218)		(1,071)		(5,669)		—		(34,944)
Recoveries	2,771		120		7		10		241		1,281		—		4,430
Net charge-offs	(16,836)		(8,255)		3		(208)		(830)		(4,388)		—		(30,514)
Provision for loan   losses and other	13,278		2,169		(2,253)		(1,542)		(3,421)		(2,133)		600		6,698
Ending balance	$	116,396	$	17,992	$	3,459	$	4,924	$	20,058	$	51,772	$	8,625	$	223,226
Six Months Ended June 30, 2020
Beginning balance	$	62,830	$	7,580	$	2,950	$	1,697	$	6,408	$	26,557	$	1,200	$	109,222
Adjustment to apply   recent accounting   pronouncements(1)	20,159		11,686		397		10,300		11,427		16,235		5,553		75,757
Allowance established   for acquired PCD   loans	12,640		2,003		—		—		—		39		872		15,554
Charge-offs	(12,739)		(3,430)		(19)		(2,606)		(339)		(9,031)		—		(28,164)
Recoveries	1,979		15		5		—		156		972		—		3,127
Net charge-offs	(10,760)		(3,415)		(14)		(2,606)		(183)		(8,059)		—		(25,037)
Provision for loan   losses and other	39,108		6,587		1,978		2,131		4,210		18,167		—		72,181
Ending balance	$	123,977	$	24,441	$	5,311	$	11,522	$	21,862	$	52,939	$	7,625	$	247,677

(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.

21

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

The table below provides a breakdown of loans and the related allowance for credit losses by portfolio segment as of June 30, 2021 and December 31, 2020.

Loans and Related Allowance for Credit Losses by Portfolio Segment

(Dollar amounts in thousands)

	Loans								Allowance for Credit Losses
	Individually Evaluated		Collectively Evaluated		PCD		Total		Individually Evaluated		Collectively Evaluated		PCD		Total
As of June 30, 2021
Commercial, industrial,   agricultural	$	46,178	$	4,852,699	$	52,105	$	4,950,982	$	5,406	$	104,151	$	6,839	$	116,396
Commercial real estate:
Office, retail, and industrial	16,353		1,755,614		35,461		1,807,428		324		14,042		3,626		17,992
Multi-family	2,171		1,003,921		6,630		1,012,722		—		3,382		77		3,459
Construction	1,154		562,129		14,055		577,338		—		3,483		1,441		4,924
Other commercial real estate	12,914		1,399,417		49,039		1,461,370		123		9,793		10,142		20,058
Total commercial real estate	32,592		4,721,081		105,185		4,858,858		447		30,700		15,286		46,433
Total corporate loans,   excluding PPP loans	78,770		9,573,780		157,290		9,809,840		5,853		134,851		22,125		162,829
PPP loans	—		705,915		—		705,915		—		—		—		—
Total corporate loans	78,770		10,279,695		157,290		10,515,755		5,853		134,851		22,125		162,829
Consumer	—		4,499,643		19,821		4,519,464		—		51,311		461		51,772
Allowance for unfunded   commitments	—		—		—		—		—		8,625		—		8,625
Total loans	$	78,770	$	14,779,338	$	177,111	$	15,035,219	$	5,853	$	194,787	$	22,586	$	223,226
As of December 31, 2020
Commercial, industrial, and   agricultural	$	45,650	$	4,826,017	$	70,625	$	4,942,292	$	3,536	$	107,763	$	8,655	$	119,954
Commercial real estate:
Office, retail, and industrial	26,384		1,792,618		42,766		1,861,768		1,123		15,106		7,849		24,078
Multi-family	1,279		864,677		6,857		872,813		—		5,438		271		5,709
Construction	1,154		595,550		15,907		612,611		—		4,535		2,139		6,674
Other commercial real estate	13,736		1,414,541		53,699		1,481,976		171		12,651		11,487		24,309
Total commercial real estate	42,553		4,667,386		119,229		4,829,168		1,294		37,730		21,746		60,770
Total corporate loans,   excluding PPP loans	88,203		9,493,403		189,854		9,771,460		4,830		145,493		30,401		180,724
PPP loans	—		785,563		—		785,563		—		—		—		—
Total corporate loans	88,203		10,278,966		189,854		10,557,023		4,830		145,493		30,401		180,724
Consumer	—		4,172,042		22,167		4,194,209		—		57,567		726		58,293
Allowance for unfunded   commitments	—		—		—		—		—		8,025		—		8,025
Total loans	$	88,203	$	14,451,008	$	212,021	$	14,751,232	$	4,830	$	211,085	$	31,127	$	247,042

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 June 30, 2021 and December 31, 2020. PPP loans are excluded from this table as there is no allowance for credit losses associated with these loans because they are fully guaranteed by the SBA.

22

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
As of June 30, 2021
Commercial and industrial	$	21,132	$	28,250	$	1,053	$	38,169
Agricultural	6,628		—		—		4,203
Commercial real estate:
Office, retail, and industrial	24,710		—		—		9,063
Multi-family	2,965		—		—		2,965
Construction	3,349		—		—		1,476
Other commercial real estate	36,660		—		—		10,582
Total commercial real estate	67,684		—		—		24,086
Total corporate loans	95,444		28,250		1,053		66,458
Home equity	102		—		—		102
1-4 family mortgages	1,208		—		—		—
Installment	—		—		—		—
Total consumer loans	1,310		—		—		102
Total loans	$	96,754	$	28,250	$	1,053	$	66,560
As of December 31, 2020
Commercial and industrial	$	27,007	$	35,632	$	2,555	$	36,686
Agricultural	8,583		1,737		—		5,213
Commercial real estate:
Office, retail, and industrial	42,790		—		—		23,508
Multi-family	2,097		—		—		1,279
Construction	5,370		—		—		1,831
Other commercial real estate	40,430		—		—		20,158
Total commercial real estate	90,687		—		—		46,776
Total corporate loans	126,277		37,369		2,555		88,675
Home equity	211		—		—		99
1-4 family mortgages	2,807		—		—		578
Installment	—		—		—		—
Total consumer loans	3,018		—		—		677
Total loans	$	129,295	$	37,369	$	2,555	$	89,352

23

Loans Individually Evaluated

The following table presents loans individually evaluated by class of loan as of June 30, 2021 and December 31, 2020. PCD loans are excluded from this disclosure.

Loans Individually Evaluated by Class

(Dollar amounts in thousands)

	As of June 30, 2021								As of December 31, 2020
	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	$	28,372	$	11,178	$	49,061	$	4,276	$	33,643	$	1,687	$	40,055	$	398
Agricultural	4,203		2,425		11,097		1,130		5,213		5,107		14,972		3,138
Commercial real estate:
Office, retail, and industrial	7,223		9,130		18,085		324		21,537		4,847		30,474		1,123
Multi-family	2,171		—		2,171		—		1,279		—		1,279		—
Construction	1,154		—		1,154		—		1,154		—		1,507		—
Other commercial real estate	3,514		9,400		13,629		123		12,822		914		14,240		171
Total commercial real estate	14,062		18,530		35,039		447		36,792		5,761		47,500		1,294
Total corporate loans	46,637		32,133		95,197		5,853		75,648		12,555		102,527		4,830
Consumer	—		—		—		—		—		—		—		—
Total non-accrual loans   individually evaluated	$	46,637	$	32,133	$	95,197	$	5,853	$	75,648	$	12,555	$	102,527	$	4,830

Interest income recognized on non-accrual loans using the cash basis of accounting for the quarter and six months ended June 30, 2021 was $296,000 and $573,000, respectively, and $110,000 and $388,000 for the same periods in 2020.

24

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 June 30, 2021 and net loan charge-offs for the six months ended June 30, 2021. PPP loans are excluded from this table as there is no allowance for credit losses associated with these loans because they are fully guaranteed by the SBA. For a summary of credit quality indicators as of December 31, 2020, see Note 7, "Past Due Loans, Allowance for Credit Losses, Impaired Loans, and TDRs," in the Company's 2020 10-K.

Corporate Loan Portfolio by Origination Year

(Dollar amounts in thousands)

	2021(1)		2020		2019		2018		2017		Prior		Revolving Loans		Total
Commercial, industrial, agricultural:
Pass	$	447,821	$	717,836	$	732,743	$	654,037	$	363,744	$	497,033	$	1,189,785	$	4,602,999
Special Mention(2)	1,389		1,767		32,583		50,046		924		25,009		33,922		145,640
Substandard(3)	399		625		18,209		61,422		15,454		35,961		17,980		150,050
Non-accrual(4)	1,182		2,430		10,425		19,481		2,382		12,666		3,727		52,293
Total commercial,   industrial,   agricultural	$	450,791	$	722,658	$	793,960	$	784,986	$	382,504	$	570,669	$	1,245,414	$	4,950,982
Commercial, industrial,   agricultural, net loan   charge-offs	$	—	$	775	$	752	$	4,317	$	9,775	$	172	$	1,045	$	16,836
Office, retail, and industrial:
Pass	$	87,564	$	139,618	$	227,270	$	173,567	$	244,300	$	789,382	$	10,689	$	1,672,390
Special Mention(2)	—		314		2,906		5,767		8,917		33,752		—		51,656
Substandard(3)	—		632		—		21,325		2,465		39,476		—		63,898
Non-accrual(4)	—		—		—		131		169		19,184		—		19,484
Total office, retail,   and industrial	$	87,564	$	140,564	$	230,176	$	200,790	$	255,851	$	881,794	$	10,689	$	1,807,428
Office, retail, and   industrial net loan   charge-offs	$	—	$	—	$	261	$	3,899	$	1,023	$	3,072	$	—	$	8,255
Multi-family:
Pass	$	131,931	$	152,933	$	160,428	$	77,857	$	125,443	$	286,737	$	17,976	$	953,305
Special Mention(2)	—		—		—		9,918		—		35,754		—		45,672
Substandard(3)	—		—		—		380		71		9,879		—		10,330
Non-accrual(4)	—		—		—		—		935		2,480		—		3,415
Total multi-family	$	131,931	$	152,933	$	160,428	$	88,155	$	126,449	$	334,850	$	17,976	$	1,012,722
Multi-family net loan   charge-offs	$	—	$	—	$	—	$	—	$	4	$	(7)	$	—	$	(3)
Construction:
Pass	$	38,449	$	113,848	$	98,665	$	135,066	$	74,662	$	77,655	$	25,429	$	563,774
Special Mention(2)	—		—		—		40		—		72		—		112
Substandard(3)	—		—		—		—		1,395		9,088		—		10,483
Non-accrual(4)	—		—		—		—		1,154		1,815		—		2,969
Total construction	$	38,449	$	113,848	$	98,665	$	135,106	$	77,211	$	88,630	$	25,429	$	577,338
Construction net loan   charge-offs	$	—	$	—	$	—	$	—	$	(10)	$	177	$	41	$	208
Other commercial real estate:
Pass	$	154,306	$	173,606	$	149,218	$	216,066	$	143,310	$	380,975	$	28,641	$	1,246,122
Special Mention(2)	—		—		24,432		13,724		22,808		39,503		—		100,467
Substandard(3)	—		—		1,919		17,101		20,747		50,957		242		90,966
Non-accrual(4)	—		—		—		312		1,138		22,202		163		23,815
Total other   commercial real   estate	$	154,306	$	173,606	$	175,569	$	247,203	$	188,003	$	493,637	$	29,046	$	1,461,370
Other commercial real   estate net loan charge-   offs	$	—	$	—	$	—	$	246	$	(62)	$	646	$	—	$	830

(1)Represents year-to-date loans originated during 2021.

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

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

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

25

Consumer Loan Portfolio by Origination Year

(Dollar amounts in thousands)

	2021(1)		2020		2019		2018		2017		Prior		Revolving Loans		Total
Home equity:
Performing	$	5,020	$	11,149	$	8,859	$	11,199	$	9,246	$	53,069	$	520,877	$	619,419
Non-accrual	—		—		—		538		226		6,961		2,223		9,948
Total home equity	$	5,020	$	11,149	$	8,859	$	11,737	$	9,472	$	60,030	$	523,100	$	629,367
Home equity net   loan charge-offs	$	—	$	—	$	—	$	26	$	(42)	$	(112)	$	(14)	$	(142)
1-4 family mortgages:
Performing	$	371,229	$	1,696,057	$	683,454	$	141,720	$	90,860	$	291,895	$	—	$	3,275,215
Non-accrual	—		863		384		627		638		10,046		—		12,558
Total 1-4 family   mortgages	$	371,229	$	1,696,920	$	683,838	$	142,347	$	91,498	$	301,941	$	—	$	3,287,773
1-4 family mortgages   net loan charge-offs	$	—	$	—	$	—	$	2	$	—	$	208	$	—	$	210
Installment:
Performing	$	138,273	$	148,363	$	126,842	$	87,780	$	37,576	$	25,380	$	38,110	$	602,324
Non-accrual	—		—		—		—		—		—		—		—
Total installment	$	138,273	$	148,363	$	126,842	$	87,780	$	37,576	$	25,380	$	38,110	$	602,324
Installment net loan   charge-offs	$	14	$	959	$	2,072	$	1,170	$	193	$	(115)	$	27	$	4,320

(1)Represents year-to-date loans originated during 2021.

During the quarter and six months ended June 30, 2021, $9.7 million and $21.1 million, respectively, and $16.8 million and $23.8 million, for the same periods in 2020, of revolving loans converted to term loans.

TDRs

TDRs are generally performed at the request of the individual borrower and may include forgiveness of principal, reduction in interest rates, changes in payments, and maturity date extensions. The table below presents TDRs by class as of June 30, 2021 and December 31, 2020. See Note 1, "Summary of Significant Accounting Policies," for the accounting policy for TDRs.

TDRs by Class

(Dollar amounts in thousands)

	As of June 30, 2021						As of December 31, 2020
	Accruing		Non-accrual(1)		Total		Accruing		Non-accrual(1)		Total
Commercial and industrial	$	—	$	6,923	$	6,923	$	—	$	8,859	$	8,859
Agricultural	—		—		—		—		—		—
Commercial real estate:
Office, retail, and industrial	—		—		—		—		2,340		2,340
Multi-family	—		153		153		—		160		160
Construction	—		—		—		—		—		—
Other commercial real estate	164		—		164		184		—		184
Total commercial real estate	164		153		317		184		2,500		2,684
Total corporate loans	164		7,076		7,240		184		11,359		11,543
Home equity	30		108		138		31		116		147
1-4 family mortgages	588		219		807		598		228		826
Installment	—		—		—		—		—		—
Total consumer loans	618		327		945		629		344		973
Total loans	$	782	$	7,403	$	8,185	$	813	$	11,703	$	12,516

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

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In March of 2020, the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") was enacted by the U.S. government in response to the economic disruption caused by the pandemic. The Company's banking regulators issued the "Interagency Statement on Loan Modifications by Financial Institutions Working with Customers Affected by the Coronavirus" that encourages financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations due to the effects of the pandemic. Additionally, the CARES Act as amended by the 2021 Consolidated Appropriations Act, which was signed into law in December 2020, provides that a qualified loan modification is exempt from classification as a TDR as defined by GAAP, from the period beginning March 1, 2020 until the earlier of January 1, 2022 or the date that is 60 days after the date on which the national emergency concerning the pandemic declared by the President of the United States terminates. As of June 30, 2021, the Company has eligible modifications with outstanding balances totaling $88.5 million, which are not classified as TDRs.

TDRs are included in the calculation of the allowance for credit losses in the same manner as non-accrual loans. As of June 30, 2021 and December 31, 2020 there were $252,000 and $140,000 of specific allowances, respectively, related to TDRs.

There were no material restructurings during the quarters and six months ended June 30, 2021 and 2020.

Accruing TDRs that do not perform in accordance with their modified terms are transferred to non-accrual. There were no material TDRs that defaulted within twelve months of the restructure date during the quarters and six months ended June 30, 2021 and 2020.

A rollforward of the carrying value of TDRs for the quarters and six months ended June 30, 2021 and 2020 is presented in the following table.

TDR Rollforward

(Dollar amounts in thousands)

	Quarters Ended   June 30,				Six Months Ended   June 30,
	2021		2020		2021		2020
Accruing
Beginning balance	$	798	$	1,216	$	813	$	1,233
Additions	—		—		—		—
Net payments	(16)		(15)		(31)		(32)
Net transfers to non-accrual	—		—		—		—
Ending balance	782		1,201		782		1,201
Non-accrual
Beginning balance	8,011		17,917		11,703		20,514
Additions	—		—		—		934
Net payments	(609)		(2,595)		(3,274)		(3,253)
Charge-offs	1		(3,229)		(1,026)		(6,102)
Net transfers from accruing	—		—		—		—
Ending balance	7,403		12,093		7,403		12,093
Total TDRs	$	8,185	$	13,294	$	8,185	$	13,294

There were no commitments to lend additional funds to borrowers with TDRs as of June 30, 2021 and December 31, 2020.

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8. LEASE OBLIGATIONS

The significant accounting policies related to lease obligations are presented in Note 1, "Summary of Significant Accounting Policies" to the Consolidated Financial Statements in the Company's 2020 10-K.

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 June 30, 2021, the weighted-average remaining lease term on these leases was 9.4 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 June 30, 2021.

Lease Liability

(Dollar amounts in thousands)

	As of    June 30, 2021
Year Ending December 31,
2021	$	11,307
2022	22,525
2023	22,625
2024	22,443
2025	21,257
2026 and thereafter	96,135
Total minimum lease payments	196,292
Discount(1)	(24,513)
Lease liability(2)	$	171,779

(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 2.71% as of June 30, 2021.

As of June 30, 2021, right-of-use assets of $144.1 million associated with lease liabilities were included in accrued interest receivable and other assets in the Consolidated Statements of Financial Condition.

During 2020, the Company initiated certain actions that include optimizing its retail branch network and delivery model through the consolidation of 17 branches, or approximately 15% of its branch network, which were completed in the first quarter of 2021. These actions resulted in pre-tax costs of $19.9 million, including $9.1 million of right-of-use asset impairment charges and $8.9 million of impairment charges on branch locations, furniture, and equipment associated with valuation adjustments related to locations identified for closure, among other items, and were recorded within optimization costs within noninterest expense during the third and fourth quarters of 2020.

The following table presents net operating lease expense for the quarters and six months ended June 30, 2021 and 2020.

Net Operating Lease Expense

(Dollar amounts in thousands)

	Quarters Ended   June 30,				Six Months Ended   June 30,
	2021		2020		2021		2020
Lease expense charged to operations	$	4,441	$	4,839	$	9,052	$	9,514
Rental income from premises leased to others (1)	(108)		(183)		(222)		(398)
Net operating lease expense	$	4,333	$	4,656	$	8,830	$	9,116

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

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9. MATERIAL TRANSACTIONS AFFECTING STOCKHOLDERS' EQUITY

Issuance of Common Stock

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

Issuance of Preferred Stock

During the second quarter of 2020, the Company issued 4.3 million depositary shares, each representing a 1/40th interest in a share of the Company's 7.000% Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series A, and 4.9 million depositary shares, each representing a 1/40th interest in a share of the Company's 7.000% Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series C, for an aggregate of $230.5 million. The Company received proceeds of $221.2 million, net of underwriting discounts and commissions and issuance costs and expects to use the proceeds for general corporate purposes.

Stock Repurchases

On February 26, 2020, the Company announced a stock repurchase program 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 expired in March 2020. The Company repurchased 715,000 shares of its common stock at a total cost of $14.9 million during the six months ended June 30, 2021. The Company did not repurchase any shares of its common stock during the second quarter of 2021.

10. EARNINGS PER COMMON SHARE

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

Basic and Diluted EPS

(Amounts in thousands, except per share data)

	Quarters Ended   June 30,				Six Months Ended   June 30,
	2021		2020		2021		2020
Net income	$	51,121	$	19,064	$	96,144	$	38,670
Preferred dividends	(4,034)		(1,037)		(8,068)		(1,037)
Net income applicable to unvested restricted shares	(521)		(187)		(1,007)		(379)
Net income applicable to common shares	$	46,566	$	17,840	$	87,069	$	37,254
Weighted-average common shares outstanding:
Weighted-average common shares outstanding (basic)	112,865		113,145		112,980		111,533
Dilutive effect of common stock equivalents	775		191		757		339
Weighted-average diluted common shares outstanding	113,640		113,336		113,737		111,872
Basic EPS	$	0.41	$	0.16	$	0.77	$	0.33
Diluted EPS	$	0.41	$	0.16	$	0.77	$	0.33

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11. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

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

Cash Flow Hedges

As of June 30, 2021, the Company hedged $430.0 million of certain corporate variable rate loans using interest rate swaps through which the Company receives fixed amounts and pays variable amounts. The Company also hedged $25.0 million of borrowed funds using 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.

The forward starting interest rate swaps totaling $25.0 million begin in January of 2023 and mature in January of 2026. The weighted-average fixed interest rate to be paid on these interest rate swaps that have not yet begun was 0.60% as of June 30, 2021. These derivative contracts are designated as cash flow hedges.

Cash Flow Hedges

(Dollar amounts in thousands)

	As of
	June 30, 2021			December 31, 2020
Gross notional amount outstanding	$	455,000		$	455,000
Derivative asset fair value in other assets(1)	1,410			3,707
Derivative liability fair value in other liabilities(1)	—			(1)
Weighted-average interest rate received	2.18		%	2.18		%
Weighted-average interest rate paid	0.11		%	0.15		%
Weighted-average maturity (in years)	1.00			1.50

(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 June 30, 2021, the Company estimates that $6.9 million 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 June 30, 2021 and December 31, 2020, 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 $2.0 million and $4.0 million for the quarter and six months ended June 30, 2021, and were $694,000 and $5.4 million for the quarter and six months ended June 30, 2020.

Other Derivative Instruments

(Dollar amounts in thousands)

	As of
	June 30, 2021		December 31, 2020
Gross notional amount outstanding	$	4,674,616	$	4,491,398
Derivative asset fair value in other assets(1)	101,027		149,997
Derivative liability fair value in other liabilities(1)	(33,528)		(44,580)
Fair value of derivative(2)	34,527		46,018

(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.

30

The Company occasionally enters into risk participation agreements with counterparty banks to transfer or assume a portion of the credit risk related to customer transactions. The amounts of these instruments were not material for any periods presented. The Company had no other derivative instruments as of June 30, 2021 and December 31, 2020. The Company does not enter into derivative transactions for purely speculative purposes.

The following table presents the impact of derivative instruments on comprehensive income (loss) and the reclassification of gains (losses) from accumulated other comprehensive income (loss) to net interest income for the quarters and six months ended June 30, 2021 and 2020.

Cash Flow Hedge Accounting on AOCI

(Dollar amounts in thousands)

	Quarters Ended   June 30,				Six Months Ended   June 30,
	2021		2020		2021		2020
Gains (losses) recognized in other comprehensive income
Interest rate swaps in interest income	$	151	$	5,951	$	354	$	27,955
Interest rate swaps in interest expense	(90)		(1,276)		(702)		(13,685)
Reclassification of gains included in net income
Interest rate swaps in interest income	$	2,226	$	2,624	$	4,430	$	3,069
Interest rate swaps in interest expense	—		—		—		—

The following table presents the impact of derivative instruments on net interest income for the quarters and six months ended June 30, 2021 and 2020.

Hedge Income

(Dollar amounts in thousands)

	Quarters Ended   June 30,				Six Months Ended   June 30,
	2021		2020		2021		2020
Cash Flow Hedges
Interest rate swaps in interest income	$	2,226	$	2,624	$	4,430	$	3,069
Interest rate swaps in interest expense	—		—		—		—
Total cash flow hedges	$	2,226	$	2,624	$	4,430	$	3,069

Credit Risk

Derivative instruments are inherently subject to credit risk, which represents the Company's risk of loss when the counterparty to a derivative contract fails to perform according to the terms of the agreement. Credit risk is managed by limiting and collateralizing the aggregate amount of net unrealized losses by transaction, monitoring the size and the maturity structure of the derivatives, and applying uniform credit standards. Company policy establishes limits on credit exposure to any single counterparty. In addition, the Company established bilateral collateral agreements with derivative counterparties that provide for exchanges of marketable securities or cash to collateralize either party's net losses above a stated minimum threshold. As of June 30, 2021 and December 31, 2020, 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.

31

Certain derivative instruments are subject to master netting agreements with counterparties. The Company records these transactions at their gross fair values and does not offset derivative assets and liabilities in the Consolidated Statements of Financial Condition. The following table presents the fair value of the Company's derivatives and offsetting positions as of June 30, 2021 and December 31, 2020.

Fair Value of Offsetting Derivatives

(Dollar amounts in thousands)

	As of June 30, 2021				As of December 31, 2020
	Assets		Liabilities		Assets		Liabilities
Gross amounts recognized	$	102,437	$	33,528	$	153,704	$	44,581
Less: amounts offset in the Consolidated Statements of   Financial Condition	—		—		—		—
Net amount presented in the Consolidated Statements of   Financial Condition(1)	102,437		33,528		153,704		44,581
Gross amounts not offset in the Consolidated Statements of   Financial Condition:
Offsetting derivative positions	(3,467)		(3,467)		(5,239)		(5,239)
Cash collateral pledged	—		(28,720)		—		(39,970)
Net credit exposure	$	98,970	$	1,341	$	148,465	$	(628)

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

As of June 30, 2021 and December 31, 2020, the Company's derivative instruments generally contained provisions that require the Company's debt to remain above a certain credit rating by each of the major credit rating agencies or that the Company maintain certain capital levels. If the Company's debt were to fall below that credit rating or the Company's capital were to fall below the required levels, it would be in violation of those provisions, and the counterparties to the derivative instruments could terminate the swap transaction and demand cash settlement of the derivative instrument in an amount equal to the derivative liability fair value. As of June 30, 2021 and December 31, 2020 the Company was in compliance with these provisions.

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12. COMMITMENTS, GUARANTEES, AND CONTINGENT LIABILITIES

Credit Commitments and Guarantees

In the normal course of business, the Company enters into a variety of financial instruments with off-balance sheet risk to meet the financing needs of its customers and to conduct lending activities, including commitments to extend credit 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
	June 30, 2021		December 31, 2020
Commitments to extend credit:
Commercial, industrial, and agricultural	$	2,320,641	$	2,318,346
Commercial real estate	449,176		378,282
Home equity	634,071		611,640
Other commitments(1)	272,225		264,869
Total commitments to extend credit	$	3,676,113	$	3,573,137
Letters of credit	$	115,722	$	115,130

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

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

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

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

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

As a result of the sale of certain 1-4 family mortgage loans, the Company is contractually obligated to repurchase early payment default loans or loans that do not meet underwriting requirements at recorded value. In accordance with the sales agreements, there is no limitation to the maximum potential future payments or expiration of the Company's recourse obligation. There were no material loan repurchases during the quarters and six months ended June 30, 2021 and 2020.

Legal Proceedings

At June 30, 2021, there were certain legal proceedings pending against the Company and its subsidiaries in the ordinary course of business. While the outcome of any legal proceeding is inherently uncertain, based on information currently available, the Company's management does not expect that any potential liabilities arising from pending legal matters will have a material adverse effect on the Company's business, financial position, or results of operations.

33

13. FAIR VALUE

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

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

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

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

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

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

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

34

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

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

Recurring Fair Value Measurements

(Dollar amounts in thousands)

	As of June 30, 2021						As of December 31, 2020
	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Assets
Equity securities	$	87,480	$	20,497	$	—	$	52,888	$	18,516	$	—
Securities available-for-sale
U.S. treasury securities	1,003		—		—		12,051		—		—
U.S. agency securities	—		598,797		—		—		652,474		—
CMOs	—		1,339,626		—		—		1,438,518		—
MBSs	—		814,361		—		—		580,840		—
Municipal securities	—		221,901		—		—		236,015		—
Corporate debt securities	—		180,506		—		—		176,510		—
Total securities available-for-sale	1,003		3,155,191		—		12,051		3,084,357		—
Mortgage servicing rights ("MSRs")(1)	—		—		6,269		—		—		4,899
Derivative assets(1)	—		102,437		—		—		153,704		—
Liabilities
Derivative liabilities(2)	$	—	$	33,528	$	—	$	—	$	44,581	$	—

(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 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, and various preferred equity investments. The fair value of certain community development investments is based on quoted prices in active markets or market prices for similar securities obtained from external pricing services or dealer market participants and is classified in level 2 of the fair value hierarchy. As of June 30, 2021, 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. Because 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, mutual funds, and preferred equity investments 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 $831.8 million and $766.1 million as of June 30, 2021 and December 31, 2020, respectively. These loans are owned by third-parties and are not included in the Consolidated Statements of Financial Condition. The Company determines the fair value of MSRs by estimating the present value of expected future cash flows associated with the mortgage loans being serviced and classifies them in level 3 of the fair value hierarchy. The following table presents the ranges of significant, unobservable inputs used by the Company to determine the fair value of MSRs as of June 30, 2021 and December 31, 2020.

Significant Unobservable Inputs Used in the Valuation of MSRs

	As of
	June 30, 2021				December 31, 2020
Prepayment speed	7.7	%	-	15.3%	5.3	%	-	16.3%
Maturity (months)	22		-	83	13		-	71
Discount rate	9.5	%	-	12.0%	9.5	%	-	12.0%

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

A rollforward of the carrying value of MSRs for the quarters and six months ended June 30, 2021 and 2020 is presented in the following table.

Carrying Value of MSRs

(Dollar amounts in thousands)

	Quarters Ended   June 30,				Six Months Ended   June 30,
	2021		2020		2021		2020
Beginning balance	$	6,361	$	4,874	$	4,899	$	5,858
New MSRs	530		745		1,567		901
Total gains (losses) included in earnings(1):
Changes in valuation inputs and assumptions	(300)		(750)		466		(1,658)
Other changes in fair value(2)	(322)		(405)		(663)		(637)
Ending balance(3)	$	6,269	$	4,464	$	6,269	$	4,464
Contractual servicing fees earned(1)	$	471	$	394	$	960	$	797

(1)Included in mortgage banking income in the Condensed Consolidated Statements of Income and related to assets held as of June 30, 2021 and 2020.

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

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

Derivative Assets and Derivative Liabilities

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

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

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

Non-Recurring Fair Value Measurements

(Dollar amounts in thousands)

	As of June 30, 2021						As of December 31, 2020
	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Collateral-dependent non-accrual loans(1)	$	—	$	—	$	46,614	$	—	$	—	$	21,246
OREO(2)	—		—		2,000		—		—		—
Loans held-for-sale(3)	—		—		19,511		—		—		44,965
Assets held-for-sale(4)	—		—		4,205		—		—		3,722

(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 of collateral, 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 June 30, 2021 and December 31, 2020, loans held-for-sale consists of 1-4 family mortgage loans, which were originated with the intent to sell. These loans were recorded in the held-for-sale category at the contract price and, accordingly, are classified in level 3 of the fair value hierarchy.

Assets Held-for-Sale

Assets held-for-sale as of June 30, 2021 and December 31, 2020 consists of former branches that are no longer in operation and parcels of land previously purchased for expansion. These properties are being actively marketed and were transferred into the held-for-sale category at their fair value as determined by current appraisals. Based on these valuation methods, they are classified in level 3 of the fair value hierarchy.

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Financial Instruments Not Required to be Measured at Fair Value

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

Fair Value Measurements of Other Financial Instruments

(Dollar amounts in thousands)

		As of
		June 30, 2021				December 31, 2020
	Fair Value Hierarchy Level	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Assets
Cash and due from banks	1	$	232,989	$	232,989	$	196,364	$	196,364
Interest-bearing deposits in other banks	2	1,312,412		1,312,412		920,880		920,880
Securities held-to-maturity	2	11,593		11,125		12,071		11,686
FHLB and FRB stock	2	106,890		106,890		117,420		117,420
Loans	3	14,820,618		14,672,973		14,512,215		14,614,029
Investment in BOLI	3	300,537		300,537		301,101		301,101
Accrued interest receivable	3	62,964		62,964		68,390		68,390
Liabilities
Deposits	2	$	17,032,883	$	17,035,250	$	16,012,464	$	16,007,133
Borrowed funds	2	1,299,424		1,299,424		1,546,414		1,546,414
Senior and subordinated debt	2	235,178		284,691		234,768		281,842
Accrued interest payable	2	4,573		4,573		4,826		4,826

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 net loans, which consists of loans held-for-investment, acquired loans, and the allowance for loan losses. As of both June 30, 2021 and December 31, 2020, 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 114 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 and six months ended June 30, 2021 and 2020 and Consolidated Statements of Financial Condition as of June 30, 2021 and December 31, 2020. Certain reclassifications were made to prior year amounts to conform to the current year presentation. 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 financial information presented in Item 1 of this Quarterly Report on Form 10-Q ("Form 10-Q"), as well as in our 2020 Annual Report on Form 10-K ("2020 10-K"). The results of operations for the quarter and six months ended June 30, 2021 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 ("NPLs") to total loans.

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

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

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

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

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

Forward-looking statements may be deemed to include, among other things, statements relating to our future financial performance, including the related outlook for 2021, the performance of our loan or securities portfolio, the expected amount of future credit allowances or charge-offs, delays in completing the pending merger of First Midwest and Old National, the failure to obtain necessary regulatory approvals and shareholder approvals or to satisfy any of the other conditions to the merger on a timely basis or at all, the possibility that the anticipated benefits of the merger are not realized when expected or at all, corporate strategies or objectives, including the impact of certain actions and initiatives, anticipated trends in our business, regulatory developments, estimated synergies, cost savings and financial benefits of completed transactions, growth strategies, the inability to realize cost savings or improved revenues or to implement integration plans and other consequences associated with the proposed merger, and the continued or potential effects of the COVID-19 pandemic (the "pandemic") and related variants and mutations on our business, financial condition, liquidity, capital, loans, asset quality and results of operations. These statements are subject to certain risks, uncertainties and assumptions, including the duration, extent and severity of the pandemic and related variants and mutations, 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 2020 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 2020 10-K. There have been no material changes in the Company's application of critical accounting estimates related to the allowance for credit losses, valuation of securities, income taxes, and goodwill and other intangible assets since December 31, 2020.

COVID-19 PANDEMIC

The pandemic and the resulting governmental responses continue to impact our business and operations, as well as the business and operations of our clients. A variety of restrictions have been placed on companies and individuals throughout our primary operating footprint of Illinois, Wisconsin, Indiana and Iowa at various times during the pandemic. In Illinois, where we are headquartered and conduct the substantial majority of our operations, business restrictions were in place during the quarter. Although these restrictions have been relaxed, new restrictions may go into effect as the pandemic, including variants and mutations, continues to evolve. The pandemic and these governmental measures have created and may continue to create significant economic disruption and decreased economic activity.

We have experienced, and may 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 Administration's ("SBA's") Paycheck Protection Program ("PPP"), and have $705.9 million of these loans as of June 30, 2021. PPP loans have been funded by a combination of deposits and borrowings, with the related processing fees earned being recognized as a yield adjustment over the terms of these loans. We are also committed to using our strong capital levels and ample liquidity to support our clients and communities as they navigate the pandemic. We are temporarily offering several programs and services to support our clients, including:

•Consumer, mortgage, and auto loan payment deferrals;

•Small business payment deferrals; and

•A suspension of foreclosure and repossession actions.

We have included additional disclosure throughout this Item 2 in this Form 10-Q regarding the impact of the pandemic, including with respect to our loan portfolio, income, and funding and liquidity.

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We have modified our operations to comply with governmental restrictions and public health authority guidelines. Starting in the third quarter of 2021, the majority of our colleagues are working on-site and are subject to enhanced health and safety protocols. All of our branches are open for business through drive-up services and walk-in lobby traffic. We are monitoring current developments, including the Delta variant, and its potential impact and implications.

Additionally, we have implemented a variety of policies and programs to support our colleagues during the pandemic. As of June 30, 2021, we continue to provide additional health and welfare benefits, for all colleagues, including emergency medical loans, enhanced health insurance programs, and access to retirement benefits under certain pandemic-related circumstances.

Consistent with our long-standing emphasis on community engagement, we are actively supporting the communities we serve during the pandemic. We have committed $2.5 million from the First Midwest Charitable Foundation to support the immediate and long-term needs of our communities. This commitment does not impact the Company's current or future expense as the foundation is a separate entity that is not included in our consolidated financial statements. We also offer enhanced matching gift programs to support colleague donations to eligible 501(c)(3) organizations.

For additional information regarding the risks associated with the pandemic and its expected impact on the Company, refer to the section entitled "Risk Factors" in Part I, Item 1A of our 2020 Form 10-K.

PENDING MERGER OF EQUALS

Old National Bank

On June 1, 2021, the Company and Old National Bancorp ("Old National"), the holding company for Old National Bank, jointly announced they have entered into a definitive merger agreement to combine in an all-stock merger of equals transaction to create a premier Midwestern bank with approximately $45 billion in combined assets. The merger agreement, which has been unanimously approved by the boards of directors of both companies, provides for a fixed exchange ratio whereby holders of Company common stock will receive 1.1336 shares of Old National common stock for each share of Company common stock they own, other than certain shares held by the Company or Old National. In addition, the merger agreement provides that holders of Company depositary shares representing a 1/40th interest in a share of the Company's 7.000% Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series A or Series C, will receive an equal amount of Old National depositary shares each representing a 1/40th interest in a share of a corresponding new series of Old National preferred stock having terms that are not materially less favorable than the Company preferred stock. The headquarters of the surviving corporation and the main office of the surviving bank will be located in Evansville, Indiana and the name of the surviving corporation and surviving bank will be Old National Bancorp and Old National Bank, respectively. The Commercial Banking and Consumer Banking operations of the surviving bank will be headquartered in Chicago, Illinois. Michael Scudder, Chairman and Chief Executive Officer ("CEO") of the Company, will serve as the Executive Chairman, and Jim Ryan, Chairman and CEO of Old National Bancorp, will maintain his role as CEO. As of the date of announcement, the overall transaction market value was approximately $6.5 billion. The transaction is subject to customary regulatory and shareholder approvals and the completion of various closing conditions and is anticipated to close in late 2021 or early 2022. The Company will hold a special meeting of its stockholders to vote on the merger on September 15, 2021.

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PERFORMANCE OVERVIEW

Table 1

Selected Financial Data

(Amounts in thousands, except per share data)

	Quarters Ended   June 30,						Six Months Ended   June 30,
	2021			2020			2021			2020
Operating Results
Interest income	$	154,000		$	162,044		$	305,150		$	332,271
Interest expense	9,712			16,810			19,747			43,462
Net interest income	144,288			145,234			285,403			288,809
Provision for loan losses	—			32,649			6,098			72,181
Noninterest income	46,270			32,991			92,073			72,353
Noninterest expense	121,419			120,330			239,844			237,661
Income before income tax expense	69,139			25,246			131,534			51,320
Income tax expense	18,018			6,182			35,390			12,650
Net income	$	51,121		$	19,064		$	96,144		$	38,670
Preferred dividends	(4,034)			(1,037)			(8,068)			(1,037)
Net income applicable to non-vested restricted shares	(521)			(187)			(1,007)			(379)
Net income applicable to common shares	$	46,566		$	17,840		$	87,069		$	37,254
Weighted-average diluted common shares outstanding	113,640			113,336			113,737			111,872
Diluted earnings per common share	$	0.41		$	0.16		$	0.77		$	0.33
Diluted earnings per common share, adjusted(1)	$	0.46		$	0.19		$	0.83		$	0.41
Performance Ratios
Return on average common equity(2)	7.60		%	2.94		%	7.15		%	3.08		%
Return on average common equity, adjusted(1)(2)	8.56		%	3.58		%	7.74		%	3.81		%
Return on average tangible common equity(2)	12.77		%	5.32		%	12.07		%	5.49		%
Return on average tangible common equity, adjusted(1)(2)	14.31		%	6.37		%	13.02		%	6.65		%
Return on average assets(2)	0.95		%	0.37		%	0.91		%	0.40		%
Return on average assets, adjusted(1)(2)	1.06		%	0.44		%	0.98		%	0.49		%
Tax-equivalent net interest margin(1)(2)(3)	2.96		%	3.13		%	2.99		%	3.32		%
Tax-equivalent net interest margin, adjusted(1)(2)(3)	2.84		%	2.98		%	2.86		%	3.16		%
Efficiency ratio(1)	59.24		%	64.08		%	60.49		%	62.12		%

(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									June 30, 2021   Change From
	June 30, 2021			December 31, 2020			June 30, 2020			December 31, 2020		June 30, 2020
Balance Sheet Highlights
Total assets	$	21,625,424		$	20,838,678		$	21,244,881		$	786,746	$	380,543
Total loans	15,035,219			14,751,232			14,933,658			283,987		101,561
Total deposits	17,032,883			16,012,464			15,657,656			1,020,419		1,375,227
Core deposits	15,200,924			14,002,139			13,301,389			1,198,785		1,899,535
Loans to deposits	88.3		%	92.1		%	95.4		%
Core deposits to total deposits	89.2		%	87.4		%	85.0		%
Asset Quality Highlights
Non-accrual loans, excluding purchased   credit deteriorated ("PCD") loans(1)	$	101,381		$	109,957		$	94,044		$	(8,576)	$	7,337
Non-accrual PCD loans	23,101			32,568			45,116			(9,467)		(22,015)
Total non-accrual loans	124,482			142,525			139,160			(18,043)		(14,678)
90 days or more past due loans, still   accruing interest	878			4,395			3,241			(3,517)		(2,363)
Total NPLs	125,360			146,920			142,401			(21,560)		(17,041)
Accruing troubled debt   restructurings ("TDRs")	782			813			1,201			(31)		(419)
Foreclosed assets(2)	26,732			16,671			19,024			10,061		7,708
Total non-performing assets ("NPAs")	$	152,874		$	164,404		$	162,626		$	(11,530)	$	(9,752)
30-89 days past due loans	$	21,051		$	40,656		$	36,342		$	(19,605)	$	(15,291)
NPAs to total loans plus foreclosed assets	1.01		%	1.11		%	1.09		%
NPAs to total loans plus foreclosed assets, excluding PCD and PPP loans(1)(3)	0.92		%	0.96		%	0.87		%
Allowance for Credit Losses
Allowance for credit losses	$	223,226		$	247,042		$	247,677		$	(23,816)	$	(24,451)
Allowance for credit losses to total loans	1.48		%	1.67		%	1.66		%
Allowance for credit losses to   total loans, excluding PPP loans(3)	1.56		%	1.77		%	1.80		%
Allowance for credit losses to   non-accrual loans	179.32		%	173.33		%	177.98		%

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

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

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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 2020 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. Although we believe that these non-GAAP financial measures enhance investors' understanding of our business and performance, they should not be considered an alternative to GAAP. For a discussion of non-GAAP financial measures, see the section of this Item 2 titled "Non-GAAP Financial Information and Reconciliations."

Table 2 summarizes our average interest-earning assets and interest-bearing liabilities for the quarters ended June 30, 2021 and 2020, the related interest income and interest expense for each earning asset category and funding source, and the average interest rates earned and paid. Table 2 also details differences in interest income and expense from the prior quarter and the extent to which any changes are attributable to volume and rate fluctuations. Table 3 below presents this same information for the six months ended June 30, 2021 and 2020.

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Table 2

Net Interest Income and Margin Analysis

(Dollar amounts in thousands)

	Quarters Ended June 30,										Attribution of Change in Net Interest Income
	2021					2020
	Average Balance		Interest		Yield/ Rate (%)	Average Balance		Interest		Yield/ Rate (%)	Volume		Yield/ Rate		Total
Assets
Other interest-earning assets	$	1,185,187	$	745	0.25	$	646,887	$	471	0.29	$	328	$	(54)	$	274
Securities(1)	3,226,974		16,752		2.08	3,357,984		21,040		2.51	(216)		(4,072)		(4,288)
Federal Home Loan Bank   ("FHLB") and Federal Reserve   Bank ("FRB") stock	106,330		934		3.51	154,678		368		0.95	(74)		640		566
Loans, excluding PPP loans(1)	14,095,989		125,264		3.56	13,729,250		135,952		3.98	3,763		(14,451)		(10,688)
PPP loans(1)	1,035,386		11,258		4.36	887,997		5,368		2.43	1,014		4,876		5,890
Total loans(1)(2)	15,131,375		136,522		3.62	14,617,247		141,320		3.89	4,777		(9,575)		(4,798)
Total interest-earning assets(1)(2)	19,649,866		154,953		3.16	18,776,796		163,199		3.49	4,815		(13,061)		(8,246)
Cash and due from banks	268,450					275,696
Allowance for loan losses	(235,770)					(224,519)
Other assets	1,850,663					2,040,133
Total assets	$	21,533,209				$	20,868,106
Liabilities and Stockholders' Equity
Savings deposits	$	2,740,893	121		0.02	$	2,246,643	99		0.02	22		—		22
NOW accounts	3,048,990		261		0.03	2,549,088		637		0.10	160		(536)		(376)
Money market deposits	3,055,420		559		0.07	2,663,622		1,157		0.17	1,005		(1,603)		(598)
Time deposits	1,876,216		2,190		0.47	2,539,996		8,184		1.30	(654)		(5,340)		(5,994)
Borrowed funds	1,288,107		3,112		0.97	2,466,300		3,156		0.51	(1,535)		1,491		(44)
Senior and subordinated debt	235,080		3,469		5.92	234,259		3,577		6.14	63		(171)		(108)
Total interest-bearing   liabilities	12,244,706		9,712		0.32	12,699,908		16,810		0.53	(939)		(6,159)		(7,098)
Demand deposits	6,254,791					5,305,109
Total funding sources	18,499,497				0.21	18,005,017				0.38
Other liabilities	347,178					361,311
Stockholders' equity	2,686,534					2,501,778
Total liabilities and   stockholders' equity	$	21,533,209				$	20,868,106
Tax-equivalent net interest   income/margin(1)			145,241		2.96			146,389		3.13	$	5,754	$	(6,902)	$	(1,148)
Tax-equivalent adjustment			(953)					(1,155)
Net interest income (GAAP)			$	144,288				$	145,234
Impact of acquired loan accretion			$	5,975	0.12			$	6,999	0.15
Tax-equivalent net interest income/   margin, adjusted(1)			$	139,266	2.84			$	139,390	2.98

(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 $124.5 million as of June 30, 2021 and $139.2 million as of June 30, 2020, 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 Performing Loans Classified as Substandard and Special Mention."

45

Table 3

Net Interest Income and Margin Analysis

(Dollar amounts in thousands)

	Six Months Ended June 30,										Attribution of Change in Net Interest Income
	2021					2020
	Average Balance		Interest		Yield/ Rate (%)	Average Balance		Interest		Yield/ Rate (%)	Volume		Yield/ Rate		Total
Assets
Other interest-earning assets	$	973,917	$	1,425	0.30	$	405,619	$	1,287	0.64	$	224	$	(86)	$	138
Securities(1)	3,179,300		33,016		2.08	3,212,279		41,797		2.60	(579)		(8,202)		(8,781)
FHLB and FRB stock	106,959		1,923		3.60	140,661		1,755		2.50	(199)		367		168
Loans, excluding PPP loans(1)	14,044,931		250,572		3.60	13,401,500		284,372		4.27	14,592		(48,391)		(33,799)
PPP loans(1)	1,025,149		20,150		3.96	443,999		5,368		2.43	10,001		4,781		14,782
Total loans(1)(2)	15,070,080		270,722		3.62	13,845,499		289,740		4.21	24,593		(43,610)		(19,017)
Total interest-earning assets(1)(2)	19,330,256		307,086		3.20	17,604,058		334,579		3.82	24,039		(51,531)		(27,492)
Cash and due from banks	252,784					268,516
Allowance for loan losses	(237,775)					(201,956)
Other assets	1,882,556					1,965,845
Total assets	$	21,227,821				$	19,636,463
Liabilities and Stockholders' Equity
Savings deposits	$	2,657,656	234		0.02	$	2,157,903	262		0.02	43		(71)		(28)
NOW accounts	2,926,460		512		0.04	2,411,122		2,267		0.19	625		(2,380)		(1,755)
Money market deposits	3,032,138		1,193		0.08	2,445,664		4,257		0.35	1,376		(4,440)		(3,064)
Time deposits	1,927,317		4,649		0.49	2,736,231		20,408		1.50	(4,792)		(10,967)		(15,759)
Borrowed funds	1,308,637		6,219		0.96	2,237,000		8,997		0.81	(4,939)		2,161		(2,778)
Senior and subordinated debt	234,977		6,940		5.96	234,157		7,271		6.24	26		(357)		(331)
Total interest-bearing   liabilities	12,087,185		19,747		0.33	12,222,077		43,462		0.72	(7,661)		(16,054)		(23,715)
Demand deposits	6,087,314					4,594,562
Total funding sources	18,174,499				0.22	16,816,639				0.52
Other liabilities	368,171					361,357
Stockholders' equity	2,685,151					2,429,184
Total liabilities and   stockholders' equity	$	21,227,821				$	19,607,180
Tax-equivalent net interest   income/margin(1)			287,339		2.99			291,117		3.32	$	31,700	$	(35,477)	$	(3,777)
Tax-equivalent adjustment			(1,936)					(2,308)
Net interest income (GAAP)			$	285,403				$	288,809
Impact of acquired loan   accretion			$	13,140	0.14			$	13,945	0.16
Tax-equivalent net interest income/   margin, adjusted(1)			$	274,199	2.85			$	277,172	3.16

(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 $124.5 million as of June 30, 2021 and $139.2 million as of June 30, 2020, 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 Performing Loans Classified as Substandard and Special Mention."

Net interest income for the second quarter and first six months of 2021 was down 0.7% and 1.2% compared to the same periods in 2020. The decrease in net interest income resulted primarily from lower interest rates, partially offset by growth in loans and an increase in interest income and fees on PPP loans. In addition, net interest income compared to the first six months of 2020 was impacted by the acquisition of interest-earning assets from the Park Bank transaction that closed in March 2020.

46

Acquired loan accretion contributed $6.0 million and $13.1 million for the second quarter and first six months of 2021, respectively, and $7.0 million and $13.9 million to net interest income for the same periods in 2020.

Tax-equivalent net interest margin for the second quarter and first six months of 2021 was 2.96% and 2.99%, decreasing 17 and 33 basis points from the same periods in 2020. Excluding the impact of acquired loan accretion, tax-equivalent net interest margin was 2.84% and 2.85% for the second quarter and first six months of 2021, down 14 and 31 basis points from the same periods of 2020. The decrease compared to both prior periods was driven primarily by lower interest rates on loans and securities, as well as a higher balance of other interest-earning assets due to higher demand deposits as a result of PPP loan funds and other government stimuli, partially offset by lower cost of funds and higher yields on PPP loans.

For the second quarter and first six months of 2021, total average interest-earning assets rose by $873.1 million and $1.7 billion from the same periods in 2020. The increase compared to both prior periods was driven primarily by a higher balance of other interest-earning assets due to higher demand deposits as a result of PPP loan funds and other government stimuli, as well as loan growth. In addition, the increase compared to the first six months of 2020 was impacted by assets acquired in the Park Bank transaction,

Total average funding sources for the second quarter and first six months of 2021 increased by $494.5 million and $1.4 billion from the same periods in 2020, driven primarily by deposit growth due to higher customer balances resulting from PPP funds and other government stimuli, partially offset by a decrease in FHLB advances. In addition, the increase compared to the first six months of 2020 was impacted by deposits assumed in the Park Bank transaction.

Noninterest Income

A summary of noninterest income for the quarters and six months ended June 30, 2021 and 2020 is presented in the following table.

Table 4

Noninterest Income Analysis

(Dollar amounts in thousands)

	Quarters Ended   June 30,					Six Months Ended   June 30,
	2021		2020		% Change	2021		2020		% Change
Wealth management fees	$	14,555	$	11,942	21.9	$	28,704	$	24,303	18.1
Service charges on deposit accounts	10,778		9,125		18.1	20,758		20,906		(0.7)
Mortgage banking income	6,749		3,477		94.1	16,936		5,265		221.7
Card-based fees, net(1)	4,764		3,180		49.8	9,320		7,148		30.4
Capital market products income	1,954		694		181.6	4,043		5,416		(25.4)
Other service charges, commissions, and   fees	2,823		2,078		35.9	5,584		4,760		17.3
Total fee-based revenues	41,623		30,496		36.5	85,345		67,798		25.9
Other income(2)	4,647		2,495		86.3	6,728		5,560		21.0
Net securities losses	—		—		N/M	—		(1,005)		N/M
Total noninterest income	$	46,270	$	32,991	40.3	$	92,073	$	72,353	27.3

N/M – Not meaningful

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

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

Total noninterest income of $46.3 million for the second quarter and first six months of 2021 was up 40.3% and 27.3% from the same periods in 2020. Record wealth management fees resulted from a higher market environment and continued sales of fiduciary and investment advisory services to new and existing customers. The increase in net card-based fees and other service charges, commissions and fees compared to the second quarter and first six months of 2020, as well as service charges on deposit accounts compared to the second quarter of 2020 resulted from the impact of higher transaction volumes due to economic recovery since the onset of the pandemic. Capital market products income resulted from levels of sales to corporate clients in light of market conditions that were higher than the second quarter of 2020 and lower than the first six months of 2020.

47

Mortgage banking income for the second quarter and first six months of 2021 resulted from sales of $207.8 million and $491.7 million of 1-4 family mortgage loans in the secondary market compared to $168.7 million and $285.3 million in the second quarter and first six months of 2020.

Other income increased compared to the second quarter and first six months of 2020 as a result of fair value adjustments on equity securities.

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

Noninterest Expense

A summary of noninterest expense for the quarters and six months ended June 30, 2021 and 2020 is presented in the following table.

Table 5

Noninterest Expense Analysis

(Dollar amounts in thousands)

	Quarters Ended   June 30,					Six Months Ended   June 30,
	2021		2020		% Change	2021		2020		% Change
Salaries and employee benefits:
Salaries and wages	$	51,887	$	52,592	(1.3)	$	105,580	$	102,582	2.9
Retirement and other employee benefits	12,324		11,080		11.2	25,032		23,949		4.5
Total salaries and employee benefits	64,211		63,672		0.8	130,612		126,531		3.2
Net occupancy and equipment expense	13,654		15,116		(9.7)	28,406		29,343		(3.2)
Technology and related costs	10,453		9,853		6.1	20,737		18,401		12.7
Professional services	7,568		8,880		(14.8)	15,627		19,270		(18.9)
Advertising and promotions	2,899		2,810		3.2	4,734		5,571		(15.0)
Net OREO expense	160		126		(27.0)	749		546		37.2
Other expenses	14,670		14,624		0.3	29,405		27,278		7.8
Acquisition and integration related   expenses	7,773		5,249		48.1	8,018		10,721		(25.2)
Optimization costs	31		—		N/M	1,556		—		—
Total noninterest expense	$	121,419	$	120,330	0.9	$	239,844	$	237,661	0.9
Acquisition and integration related   expenses	(7,773)		(5,249)		48.1	(8,018)		(10,721)		(25.2)
Optimization costs	(31)		—		N/M	(1,556)		—		N/M
Total noninterest expense, adjusted(1)	$	113,615	$	115,081	(1.3)	$	230,270	$	226,940	1.5

N/M – Not meaningful

(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 was stable compared to the second quarter and first six months of 2020. Noninterest expense for all periods was impacted by acquisition and integration related expenses and both periods in 2021 were impacted by optimization costs. Excluding these items, noninterest expense for the second quarter and first six months of 2021 was $113.6 million and $230.3 million, down 1.3% and up 1.5% from the same periods in 2020. Overall, noninterest expense, adjusted, to average assets, excluding PPP loans, was 2.22% and 2.30% for the second quarter and first six months of 2021, down 10 and 8 basis points from the same periods in 2020.

Operating costs associated with the Park Bank transaction contributed to the increase in noninterest expense compared to the first six months of 2020. These costs primarily occurred in salaries and employee benefits, net occupancy and equipment expense, technology and related costs, and other expenses.

Salaries and employee benefits increased compared to both prior periods primarily due to higher equity compensation accruals and pension plan lump-sum payments to retired employees, as well as merit increases, partially offset by the ongoing benefits of optimization strategies. Net occupancy and equipment expense decreased compared to both prior periods due to ongoing benefits of optimization strategies and lower levels of expense associated with the pandemic. The increase in technology and related costs for the first six months of 2021 was impacted by investments in technology, including the origination of PPP

48

loans. Professional services expenses were elevated for the second quarter and first six months of 2020 due to process enhancements and expenses associated with higher capital market products income. Other expenses for the first six months of 2021 was impacted by a valuation adjustment on a foreclosed asset.

Optimization costs primarily include advisory fees, employee severance, and other expenses associated with locations identified for closure.

Acquisition and integration related expenses for second quarter and first six months of 2021 resulted from the pending merger with Old National and for the same periods in 2020, resulted from the acquisition of Park Bank.

Income Taxes

Our provision for income taxes includes both federal and state income tax expense. An analysis of the provision for income taxes for the quarters and six months ended June 30, 2021 and 2020 is detailed in the following table.

Table 6

Income Tax Expense Analysis

(Dollar amounts in thousands)

	Quarters Ended   June 30,						Six Months Ended   June 30,
	2021			2020			2021			2020
Income before income tax expense	$	69,139		$	25,246		$	131,534		$	51,320
Income tax expense:
Federal income tax expense	$	12,941		$	4,963		$	25,572		$	10,300
State income tax expense	5,077			1,219			9,818			2,350
Total income tax expense	$	18,018		$	6,182		$	35,390		$	12,650
Effective income tax rate	26.1		%	24.5		%	26.9		%	24.6		%

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

The increase in income tax expense for the second quarter of 2021 and the first six months of 2021 was driven primarily by higher levels of income subject to tax at statutory rates and a decrease in federal and state tax exempt income. The increase compared to the first six months of 2020 was also impacted by $1.1 million in income tax expense related to share-based payments.

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 2020 10-K.

49

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, certain diversified 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, and various preferred equity investments. 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 income (loss) ("AOCI").

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.

From time to time, we adjust the size and composition of our securities portfolio based on a number of factors, including expected loan growth, anticipated changes in collateralized public funds on account, the interest rate environment, and the related value of various segments of the securities markets. The following table provides a valuation summary of our investment portfolio.

Table 7

Investment Portfolio

(Dollar amounts in thousands)

	As of June 30, 2021							As of December 31, 2020
	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	$	1,000	$	3	$	1,003	—	$	12,001	$	50	$	12,051	0.4
U.S. agency securities	612,173		(13,376)		598,797		19.0	654,321		(1,847)		652,474		21.1
Collateralized mortgage   obligations ("CMOs")	1,336,291		3,335		1,339,626		42.4	1,415,312		23,206		1,438,518		46.5
Other mortgage-backed   securities ("MBSs")	808,967		5,394		814,361		25.8	566,830		14,010		580,840		18.8
Municipal securities	212,308		9,593		221,901		7.0	224,446		11,569		236,015		7.6
Corporate debt securities	173,069		7,437		180,506		5.7	170,570		5,940		176,510		5.7
Total securities   available-for-sale	$	3,143,808	$	12,386	$	3,156,194	100.0	$	3,043,480	$	52,928	$	3,096,408	100.0
Securities Held-to-Maturity
Municipal securities(1)	$	11,593	$	(468)	$	11,125		$	12,071	$	(385)	$	11,686
Equity Securities					$	112,977						$	76,404

(1)Net of $220,000 of allowance for securities held-to-maturity as of June 30, 2021 and December 31, 2020.

Portfolio Composition

As of June 30, 2021, our securities available-for-sale portfolio totaled $3.2 billion, increasing $59.8 million, or 1.9%, from December 31, 2020. The increase was driven primarily by purchases of MBSs, partially offset by sales, maturities, calls, and prepayments, as well as a change in unrealized gains (losses) resulting from higher market interest rates.

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.

50

The following table presents the effective duration, average life, and yield to maturity for the Company's securities portfolio by category as of June 30, 2021 and December 31, 2020.

Table 8

Securities Effective Duration Analysis

	As of June 30, 2021					As of December 31, 2020
	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	0.13	%	0.17	2.09	%	0.20	%	0.23	2.45	%
U.S. agency securities	6.41	%	12.72	2.20	%	5.07	%	7.29	2.31	%
CMOs	3.82	%	4.87	1.92	%	3.19	%	3.84	1.99	%
MBSs	3.46	%	4.88	1.92	%	2.68	%	3.65	2.13	%
Municipal securities	4.82	%	5.10	2.80	%	4.66	%	4.84	2.81	%
Corporate debt securities	2.20	%	3.98	2.78	%	2.27	%	4.48	2.78	%
Total securities available-for-sale	4.21	%	6.37	2.08	%	3.54	%	4.64	2.19	%
Securities Held-to-Maturity
Municipal securities	4.55	%	5.69	4.71	%	6.81	%	9.14	4.75	%

(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 6.37 years and 4.21%, respectively, as of June 30, 2021, up from 4.64 years and 3.54% as of December 31, 2020. The increase resulted primarily from purchases of MBSs in a higher market interest rate environment during the first six months of 2021.

Realized Gains and Losses

There were no securities gains (losses) or impairment charges recognized during the second quarter and first six months of 2021. There were no securities gains (losses) for the second quarter of 2020 and $1.0 million of net securities losses for the first six months of 2020 as a result of repositioning of the securities portfolio due to market conditions.

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 AOCI, 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. Higher market interest rates drove the change to $12.4 million of unrealized gains as of June 30, 2021 compared to $52.9 million of unrealized gains as of December 31, 2020.

LOAN PORTFOLIO AND CREDIT QUALITY

Portfolio Composition

Our loan portfolio is comprised of both corporate and consumer loans, with corporate loans representing 69.9% of total loans as of June 30, 2021. 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 performing loans classified as substandard and special mention to monitor and mitigate potential and current risks in the portfolio.

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Table 9

Loan Portfolio

(Dollar amounts in thousands)

	As of    June 30, 2021		% of Total Loans	As of December 31, 2020		% of Total Loans	% Change
Commercial and industrial	$	4,608,148	30.6	$	4,578,254	31.0	0.7
Agricultural	342,834		2.3	364,038		2.5	(5.8)
Commercial real estate:
Office, retail, and industrial	1,807,428		12.0	1,861,768		12.6	(2.9)
Multi-family	1,012,722		6.7	872,813		5.9	16.0
Construction	577,338		3.9	612,611		4.2	(5.8)
Other commercial real estate	1,461,370		9.7	1,481,976		10.0	(1.4)
Total commercial real estate	4,858,858		32.3	4,829,168		32.7	0.6
Total corporate loans, excluding PPP loans	9,809,840		65.2	9,771,460		66.2	0.4
PPP loans	705,915		4.7	785,563		5.3	(10.1)
Total corporate loans	10,515,755		69.9	10,557,023		71.5	(0.4)
Home equity	629,367		4.2	761,725		5.2	(17.4)
1-4 family mortgages	3,287,773		21.9	3,022,413		20.5	8.8
Installment	602,324		4.0	410,071		2.8	46.9
Total consumer loans	4,519,464		30.1	4,194,209		28.5	7.8
Total loans	$	15,035,219	100.0	$	14,751,232	100.0	1.9

Total loans includes loans originated under the PPP loan program beginning in the second quarter of 2020, which totaled $705.9 million and $785.6 million as of June 30, 2021 and December 31, 2020, respectively. Excluding these loans, total loans were up 5% annualized from December 31, 2020. Strong production and line usage within our middle market and sector-based lending businesses drove growth in corporate loans, excluding PPP loans, which was partially offset by excess borrower liquidity and paydowns as a result of the pandemic.

Growth in consumer loans compared to December 31, 2020 resulted primarily from purchases of 1-4 family mortgages and installment loans, as well as strong production in the 1-4 family mortgages portfolio, which more than offset higher prepayments.

Commercial, Industrial, and Agricultural Loans

Commercial, industrial, and agricultural loans represented 32.9% of total loans, and totaled $5.0 billion at June 30, 2021, a decrease of $8.7 million, or 0.2%, from December 31, 2020. 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.

52

Commercial Real Estate Loans

Commercial real estate loans are subject to underwriting standards and processes similar to commercial and industrial loans. The repayment of commercial real estate loans depends on the successful operation of the property securing the loan or the business conducted on the property securing the loan. This category of loans may be more adversely affected by conditions in real estate markets. In addition, many commercial real estate loans do not fully amortize over the term of the loan but have balloon payments due at maturity. The borrower's ability to make a balloon payment may depend on the availability of long-term financing or their ability to complete a timely sale of the underlying property. Management monitors and evaluates commercial real estate loans based on cash flow, collateral, geography, and risk rating criteria.

Construction loans are generally made based on estimates of costs and values associated with the completed projects and are underwritten utilizing feasibility studies, independent appraisal reviews, sensitivity analyses of absorption and lease rates, and financial analyses of the developers and property owners. Sources of repayment may be permanent long-term financing, sales of developed property, or an interim loan commitment until permanent financing is obtained. Generally, construction loans have a higher risk profile than other real estate loans since repayment is impacted by real estate values, interest rate changes, governmental regulation of real property, demand and supply of alternative real estate, the availability of long-term financing, and changes in general economic conditions.

The following table presents commercial real estate loan detail as of June 30, 2021 and December 31, 2020.

Table 10

Commercial Real Estate Loans

(Dollar amounts in thousands)

	As of    June 30, 2021		% of Total	As of    December 31, 2020		% of Total
Office, retail, and industrial:
Office	$	594,253	12.2	$	626,641	13.0
Retail	559,573		11.5	579,700		12.0
Industrial	653,602		13.5	655,427		13.6
Total office, retail, and industrial	1,807,428		37.2	1,861,768		38.6
Multi-family	1,012,722		20.8	872,813		18.1
Construction	577,338		11.9	612,611		12.7
Other commercial real estate:
Multi-use properties	443,771		9.1	324,291		6.7
Rental properties	250,468		5.2	295,232		6.1
Warehouses and storage	162,722		3.3	173,837		3.6
Hotels	154,203		3.2	156,971		3.3
Service stations and truck stops	99,978		2.1	103,077		2.1
Restaurants	95,701		2.0	104,508		2.2
Recreational	72,958		1.5	87,283		1.8
Other	181,569		3.7	236,777		4.8
Total other commercial real estate	1,461,370		30.1	1,481,976		30.6
Total commercial real estate	$	4,858,858	100.0	$	4,829,168	100.0

Commercial real estate loans represent 32.3% of total loans, and totaled $4.9 billion at June 30, 2021, decreasing $29.7 million, or 0.6%, from December 31, 2020.

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 48% of the commercial real estate portfolio, excluding multi-family and construction loans, is owner-occupied as of June 30, 2021. Using outstanding loan balances, non-owner-occupied commercial real estate loans to total capital was 161% and construction loans to total capital was 23% as of June 30, 2021. 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 the Company's review of its loan portfolio in connection with the pandemic, certain elevated risk segments were identified in the corporate loan portfolio including recreation and entertainment, hotels, and restaurants, which are included in commercial and industrial loans in addition to commercial real estate loans detailed above. As of June 30, 2021, these elevated risk segments totaled $468 million, 3.3% of our granular and diverse total loan portfolio, excluding PPP loans.

PPP Loans

The Company began originating PPP loans during the second quarter of 2020 as a part of the SBA's program established by the CARES Act. These loans are fully guaranteed by the SBA and are expected to be forgiven by the SBA if the applicable criteria are met.

Consumer Loans

Consumer loans represented 30.1% of total loans, and totaled $4.5 billion at June 30, 2021, an increase of $325.3 million, or 7.8%, from December 31, 2020. 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 the Company's review of its loan portfolio in connection with the pandemic, unsecured installment loans were identified as an elevated risk segment in the consumer loan portfolio, which totaled approximately $204 million and was 1.4% of our total loan portfolio, excluding PPP loans, as of June 30, 2021. These loans are high credit quality, geographically dispersed, high-yielding, have average loan sizes of less than $9,000, and do not include any sub-prime loans, which reduces our risk exposure.

Allowance for Credit Losses

Methodology for the Allowance for Credit Losses

On January 1, 2020, the Company adopted current expected credit losses ("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 ("ACL") was estimated using an incurred loss model based on historical loss experience. The adoption of CECL impacted both the level of ACL 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 ACL 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. The determination of the ACL 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 ACL 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 ACL is an appropriate estimate of current expected credit losses in the existing loan portfolio as of June 30, 2021.

The accounting policy for the ACL 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 11

Allowance for Credit Losses and

Summary of Credit Loss Experience

(Dollar amounts in thousands)

	Quarters Ended
	June 30, 2021			March 31,   2021			December 31,   2020			September 30, 2020			June 30, 2020
Change in ACL
Beginning balance	$	243,384		$	247,042		$	246,873		$	247,677		$	226,701
Allowance established for acquired PCD loans	—			—			1			(1,188)			1,250
Loan charge-offs:
Commercial, industrial, and agricultural	16,766			2,841			7,279			6,853			5,673
Office, retail, and industrial	3,898			4,477			1,706			1,344			3,092
Multi-family	4			—			19			—			9
Construction	218			—			140			4,889			798
Other commercial real estate	585			486			1,006			1,823			31
Consumer	2,156			3,513			2,977			2,629			4,631
Total loan charge-offs	23,627			11,317			13,127			17,538			14,234
Recoveries of loan charge-offs:
Commercial, industrial, and agricultural	2,033			738			1,964			1,118			820
Office, retail, and industrial	20			100			5			5			6
Multi-family	2			5			—			—			—
Construction	10			—			—			—			—
Other commercial real estate	126			115			90			70			12
Consumer	678			603			529			602			473
Total recoveries of loan charge-offs	2,869			1,561			2,588			1,795			1,311
Net loan charge-offs	20,758			9,756			10,539			15,743			12,923
Provision for loan losses	—			6,098			10,507			15,927			32,649
Increase in allowance for unfunded   commitments	600			—			200			200			—
Ending balance	$	223,226		$	243,384		$	247,042		$	246,873		$	247,677
Total net loan charge-offs, excluding   PCD loans	$	16,421		$	7,649		$	4,051		$	8,820		$	9,090
ACL
Allowance for loan losses	$	214,601		$	235,359		$	239,017		$	239,048		$	240,052
Allowance for unfunded commitments	8,625			8,025			8,025			7,825			7,625
Total ACL	$	223,226		$	243,384		$	247,042		$	246,873		$	247,677
ACL to loans	1.48		%	1.60		%	1.67		%	1.68		%	1.66		%
ACL to loans, excluding PPP loans(1)	1.56		%	1.73		%	1.77		%	1.83		%	1.80		%
ACL to non-accrual loans	179.32		%	153.67		%	173.33		%	171.95		%	177.98		%
Net loan charge-offs to average loans,   annualized	0.55		%	0.26		%	0.29		%	0.42		%	0.36		%
Net loan charge-offs to average loans, excluding   PCD and PPP loans, annualized(1)	0.47		%	0.22		%	0.12		%	0.26		%	0.27		%

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

Activity in the Allowance for Credit Losses

The ACL was $223.2 million or 1.48% of total loans as of June 30, 2021, decreasing $23.8 million and $24.5 million compared to December 31, 2020 and June 30, 2020, respectively. Excluding the impact of PPP loans, ACL to total loans was 1.56% as of June 30, 2021, compared to 1.77% and 1.80% as of December 31, 2020 and June 30, 2020, respectively. The decrease from both prior periods reflects net charge-offs on PCD loans that previously had an ACL established upon acquisition, net charge-offs resulting from the final resolution of certain corporate credits, and an improving credit environment.

Net loan charge-offs to average loans, annualized, was 0.55%, or $20.8 million, for the second quarter of 2021, compared to 0.29% and 0.36% for the fourth and second quarters of 2020, respectively. Excluding charge-offs on PCD loans, net loan

55

charge-offs to average loans was 0.47% for the second quarter of 2021 compared to 0.12% and 0.27% for the fourth and second quarters of 2020, respectively. The increase in net loan charge-offs compared to both prior periods resulted largely from net charge-offs resulting from the final resolution of certain corporate credits.

Non-performing Assets and Performing Loans Classified as Substandard and Special Mention

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

Table 12

Loan Portfolio by Performing/Non-performing Status

(Dollar amounts in thousands)

	Accruing
	Current		30-89 Days Past Due		90 Days Past Due		Non-accrual		Total Loans
As of June 30, 2021
Commercial and industrial	$	4,554,725	$	7,873	$	392	$	45,158	$	4,608,148
Agricultural	335,699		—		—		7,135		342,834
Commercial real estate:
Office, retail, and industrial	1,786,230		1,714		—		19,484		1,807,428
Multi-family	1,009,307		—		—		3,415		1,012,722
Construction	574,329		40		—		2,969		577,338
Other commercial real estate	1,434,943		2,490		122		23,815		1,461,370
Total commercial real estate	4,804,809		4,244		122		49,683		4,858,858
Total corporate loans, excluding   PPP loans	9,695,233		12,117		514		101,976		9,809,840
PPP loans	705,915		—		—		—		705,915
Total corporate loans	10,401,148		12,117		514		101,976		10,515,755
Home equity	617,965		1,431		23		9,948		629,367
1-4 family mortgages	3,271,477		3,738		—		12,558		3,287,773
Installment	598,218		3,765		341		—		602,324
Total consumer loans	4,487,660		8,934		364		22,506		4,519,464
Total loans	$	14,888,808	$	21,051	$	878	$	124,482	$	15,035,219
As of December 31, 2020
Commercial and industrial	$	4,525,542	$	9,156	$	591	$	42,965	$	4,578,254
Agricultural	353,319		—		—		10,719		364,038
Commercial real estate:
Office, retail, and industrial	1,825,424		1,863		257		34,224		1,861,768
Multi-family	867,815		2,510		—		2,488		872,813
Construction	606,566		—		1,065		4,980		612,611
Other commercial real estate	1,441,716		14,002		434		25,824		1,481,976
Total commercial real estate	4,741,521		18,375		1,756		67,516		4,829,168
Total corporate loans, excluding   PPP loans	9,620,382		27,531		2,347		121,200		9,771,460
PPP loans	785,563		—		—		—		785,563
Total corporate loans	10,405,945		27,531		2,347		121,200		10,557,023
Home equity	745,113		4,861		956		10,795		761,725
1-4 family mortgages	3,007,767		4,001		115		10,530		3,022,413
Installment	404,831		4,263		977		—		410,071
Total consumer loans	4,157,711		13,125		2,048		21,325		4,194,209
Total loans	$	14,563,656	$	40,656	$	4,395	$	142,525	$	14,751,232

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

Table 13

Non-Performing Assets and Past Due Loans

(Dollar amounts in thousands)

	As of
	June 30, 2021			March 31,   2021			December 31, 2020			September 30, 2020			June 30, 2020
Non-accrual loans, excluding PCD   loans(1)	$	101,381		$	128,650		$	109,957		$	103,582		$	94,044
Non-accrual PCD loans	23,101			29,734			32,568			39,990			45,116
Total non-accrual loans	124,482			158,384			142,525			143,572			139,160
90 days or more past due loans, still   accruing interest	878			5,354			4,395			3,781			3,241
Total non-performing loans	125,360			163,738			146,920			147,353			142,401
Accruing TDRs	782			798			813			841			1,201
Foreclosed assets(2)	26,732			13,228			16,671			15,299			19,024
Total non-performing assets	$	152,874		$	177,764		$	164,404		$	163,493		$	162,626
30-89 days past due loans	$	21,051		$	30,973		$	40,656		$	21,551		$	36,342
Non-accrual loans to total loans:
Non-accrual loans to total loans	0.83		%	1.04		%	0.97		%	0.98		%	0.93		%
Non-accrual loans to total loans, excluding   PPP loans(1)(3)	0.87		%	1.13		%	1.02		%	1.07		%	1.01		%
Non-accrual loans to total loans, excluding   PCD and PPP loans(1)(3)	0.72		%	0.93		%	0.80		%	0.78		%	0.70		%
Non-performing loans to total loans:
NPLs to total loans	0.83		%	1.08		%	1.00		%	1.01		%	0.95		%
NPLs to total loans, excluding PPP   loans(1)(3)	0.87		%	1.16		%	1.05		%	1.10		%	1.04		%
NPLs to total loans, excluding PCD and   PPP loans(1)(3)	0.72		%	0.97		%	0.83		%	0.81		%	0.72		%
Non-performing assets to total loans plus foreclosed assets:
NPAs to total loans plus foreclosed assets	1.01		%	1.17		%	1.11		%	1.11		%	1.09		%
NPAs to total loans plus foreclosed assets,   excluding PPP loans(1)(3)	1.06		%	1.26		%	1.18		%	1.21		%	1.18		%
NPAs to total loans plus foreclosed assets,   excluding PCD and PPP loans(1)(3)	0.92		%	1.07		%	0.96		%	0.93		%	0.87		%

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

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

Total NPAs represented 1.01% of total loans and foreclosed assets at June 30, 2021, compared to 1.11% and 1.09% at December 31, 2020 and June 30, 2020, respectively. Excluding the impact of PCD and PPP loans, NPAs to total loans plus foreclosed assets was 0.92% at June 30, 2021 compared to 0.96% at December 31, 2020 and 0.87% at June 30, 2020, reflective of the final resolution of certain corporate credits and normal fluctuations that occur on a quarterly basis. Foreclosed assets was impacted by the transfer of one corporate loan relationship from non-accrual loans during the second quarter of 2021.

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TDRs

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

Table 14

TDRs by Type

(Dollar amounts in thousands)

	As of
	June 30, 2021			December 31, 2020			June 30, 2020
	Number of Loans	Amount		Number of Loans	Amount		Number of Loans	Amount
Commercial and industrial	3	$	6,923	6	$	8,859	7	$	9,524
Commercial real estate:
Office, retail, and industrial	—	—		1	2,340		1	2,340
Multi-family	1	153		1	160		1	160
Other commercial real estate	2	164		2	184		2	198
Total commercial real estate	3	317		4	2,684		4	2,698
Total corporate loans	6	7,240		10	11,543		11	12,222
Home equity	5	138		5	147		7	210
1-4 family mortgages	8	807		8	826		9	862
Installment	—	—		—	—		—	—
Total consumer loans	13	945		13	973		16	1,072
Total TDRs	19	$	8,185	23	$	12,516	27	$	13,294
Accruing TDRs	9	$	782	9	$	813	12	$	1,201
Non-accrual TDRs	10	7,403		14	11,703		15	12,093
Total TDRs	19	$	8,185	23	$	12,516	27	$	13,294
Year-to-date charge-offs on TDRs		$	1,026		$	7,247		$	6,102
Specific allowances related to TDRs		252			140			2,385

In March of 2020, the CARES Act was enacted by the U.S. government in response to the economic disruption caused by the pandemic. The Company's banking regulators issued the "Interagency Statement on Loan Modifications by Financial Institutions Working with Customers Affected by the Coronavirus" that encourages financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations due to the effects of the pandemic. Additionally, the CARES Act as amended by the 2021 Consolidated Appropriations Act, which was signed into law in December 2020, provides that a qualified loan modification is exempt from classification as a TDR as defined by GAAP, from the period beginning March 1, 2020 until the earlier of January 1, 2022 or the date that is 60 days after the date on which the national emergency concerning the pandemic declared by the President of the United States terminates. Accordingly, we are offering short-term modifications made in response to the pandemic to borrowers who are current and otherwise not past due. These include short-term modifications in the form of payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. As of June 30, 2021, the Company has eligible modifications with outstanding balances totaling $88.5 million, which are not classified as TDRs.

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Performing Loans Classified as Substandard and Special Mention

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

Table 15

Performing Loans Classified as Substandard and Special Mention

(Dollar amounts in thousands)

	As of June 30, 2021									As of December 31, 2020
	Special Mention(1)			Substandard(2)			Total(3)			Special Mention(1)			Substandard(2)			Total(3)
Commercial and industrial	$	124,035		$	144,012		$	268,047		$	225,943		$	152,158		$	378,101
Agricultural	21,605			6,038			27,643			21,034			12,676			33,710
Commercial real estate	197,907			175,677			373,584			162,106			192,385			354,491
Total performing loans   classified as substandard and   special mention(5)	$	343,547		$	325,727		$	669,274		$	409,083		$	357,219		$	766,302
PCD performing loans classified   as substandard and special   mention	$	19,842		$	42,467		$	62,309		$	40,165		$	38,020		$	78,185
Performing loans classified as   substandard and special mention   to corporate loans	3.27		%	3.10		%	6.36		%	3.88		%	3.38		%	7.26		%
Performing loans classified as   substandard and special mention   to corporate loans, excluding   PPP loans(4)(5)	3.50		%	3.32		%	6.82		%	4.19		%	3.65		%	7.84		%

(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 performing loans classified as substandard and special mention excludes accruing TDRs.

(4)This ratio excludes PPP loans that are guaranteed by the SBA. As a result, no allowance for credit losses is associated with these 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."

Performing loans classified as substandard and special mention to corporate loans was $669 million at June 30, 2021 compared to $766 million at December 31, 2020. The decrease was due primarily to the payoff of certain corporate credits in addition to upgrade and downgrade activity.

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Foreclosed Assets

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

Table 16

Foreclosed Assets by Type

(Dollar amounts in thousands)

	As of
	June 30, 2021		December 31, 2020		June 30, 2020
Single-family homes	$	—	$	191	$	1,639
Land parcels:
Raw land	—		—		—
Commercial lots	3,746		4,906		4,253
Single-family lots	1,543		1,543		1,543
Total land parcels	5,289		6,449		5,796
Multi-family units	—		117		117
Commercial properties	—		1,496		2,395
Total OREO	5,289		8,253		9,947
Other foreclosed assets(1)	21,443		8,418		9,077
Total	$	26,732	$	16,671	$	19,024

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

A rollforward of foreclosed assets balances for the quarters and six months ended June 30, 2021 and 2020 is presented in the following table.

Table 17

Foreclosed Assets Rollforward

(Dollar amounts in thousands)

	Quarters Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Beginning balance	$	13,228	$	21,027	$	16,671	$	20,458
Transfers from loans	14,759		—		14,759		121
Acquisitions	—		133		—		2,001
Acquisition accounting adjustment	—		—		—		(567)
Proceeds from sales	(1,389)		(328)		(3,474)		(1,053)
Gains on sales of foreclosed assets	134		—		266		142
Valuation adjustments	—		(1,808)		(1,490)		(2,078)
Ending balance	$	26,732	$	19,024	$	26,732	$	19,024

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FUNDING AND LIQUIDITY MANAGEMENT

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

Table 18

Funding Sources – Average Balances

(Dollar amounts in thousands)

	Quarters Ended									June 30, 2021 % Change From
	June 30, 2021			December 31, 2020			June 30, 2020			December 31, 2020	June 30, 2020
Demand deposits	$	6,254,791		$	5,753,600		$	5,305,109		8.7	17.9
Savings deposits	2,740,893			2,436,930			2,246,643			12.5	22.0
NOW accounts	3,048,990			2,774,989			2,549,088			9.9	19.6
Money market accounts	3,055,420			2,923,881			2,663,622			4.5	14.7
Core deposits	15,100,094			13,889,400			12,764,462			8.7	18.3
Time deposits	1,876,216			2,035,847			2,431,312			(7.8)	(22.8)
Brokered deposits	—			11,413			108,684			N/M	N/M
Total time deposits	1,876,216			2,047,260			2,539,996			(8.4)	(26.1)
Total deposits	16,976,310			15,936,660			15,304,458			6.5	10.9
Securities sold under agreements to   repurchase	135,865			137,421			130,122			(1.1)	4.4
Federal funds purchased	—			—			68,057			N/M	N/M
FHLB advances	1,152,242			1,524,311			2,268,121			(24.4)	(49.2)
Total borrowed funds	1,288,107			1,661,732			2,466,300			(22.5)	(47.8)
Senior and subordinated debt	235,080			234,669			234,259			0.2	0.4
Total funding sources	$	18,499,497		$	17,833,061		$	18,005,017		3.7	2.7
Average interest rate paid on   borrowed funds	0.97		%	1.00		%	0.51		%
Weighted-average maturity of FHLB   advances	90.2 months			78.9 months			60.4 months
Weighted-average interest rate of   FHLB advances	1.06		%	0.92		%	0.76		%

N/M – Not meaningful

Total average funding sources for the second quarter of 2021 increased $666.4 million, or 3.7%, from the fourth quarter of 2020 and increased $494.5 million, or 2.7%, compared to the second quarter of 2020. The increase compared to both prior periods was driven primarily by deposit growth due to higher customer balances resulting from PPP funds and other government stimuli, partially offset by a decrease in FHLB advances. In addition, seasonal municipal deposits contributed to the increase compared to the fourth quarter of 2020.

As of June 30, 2021, the Company had $9.1 billion of additional funding sources to provide ample capacity to support its clients, colleagues, and communities, with $5.5 billion of the additional funding comprised of $2.6 billion of unencumbered securities and cash, $833.0 million of Federal Reserve availability, and $2.0 billion of available FHLB capacity. In addition, the Company had the ability to utilize the Paycheck Protection Program Liquidity Facility ("PPPLF") to fund certain demand for PPP loans through July 30, 2021. As of June 30, 2021 no amount was outstanding under the PPPLF.

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Table 19

Borrowed Funds

(Dollar amounts in thousands)

	June 30, 2021			June 30, 2020
	Amount		Weighted- Average Rate (%)	Amount		Weighted- Average Rate (%)
At period-end:
Securities sold under agreements to repurchase	$	148,896	0.04	$	130,667	0.05
Federal funds purchased	—		—	200,000		0.05
FHLB advances	1,150,528		1.06	1,974,528		0.76
Total borrowed funds	$	1,299,424	0.94	$	2,305,195	0.65
Average for the year-to-date period:
Securities sold under agreements to repurchase	$	139,512	0.06	$	117,255	0.11
Federal funds purchased	—		—	163,178		1.09
FHLB advances	1,169,125		1.07	1,956,567		0.83
Total borrowed funds	$	1,308,637	0.96	$	2,237,000	0.81
Maximum amount outstanding at the end of any day during the period:
Securities sold under agreements to repurchase	$	158,220		$	159,751
Federal funds purchased	—			400,000
FHLB advances	1,404,528			2,420,528

Average borrowed funds totaled $1.3 billion for the first six months of 2021, decreasing by $928.4 million compared to the same period in 2020. This decrease was due primarily to lower levels of FHLB advances and federal funds purchased. The weighted-average rate on borrowed funds for the first six months of 2020 was impacted by the hedging of $1.1 billion of borrowed funds as of June 30, 2020, 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 1.00% as of June 30, 2020. For a detailed discussion of interest rate swaps, see Note 11 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, 2021. Advances will bear interest at a rate equal to one-month LIBOR plus 1.75%, adjusted on a monthly basis, and the Company must pay an unused facility fee equal to 0.35% per annum on a quarterly basis. As of June 30, 2021, 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 2020 Form 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 and Company as "well-capitalized" were exceeded as of June 30, 2021 and December 31, 2020.

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Table 20

Capital Measurements

(Dollar amounts in thousands)

					As of June 30, 2021
					Minimum Requirement Plus Capital Conservation Buffer				Well-Capitalized(1)
	As of				Minimum		Excess Over Minimums		Minimum		Excess Over Minimums
	June 30,   2021		December 31, 2020
Bank regulatory capital ratios
Total capital to risk-weighted assets	11.58	%	11.24	%	10.50	%	$	168,155	10.00	%	$	245,674
Tier 1 capital to risk-weighted assets	10.63	%	10.20	%	8.50	%	$	330,267	8.00	%	$	407,787
CET1 to risk-weighted assets	10.63	%	10.20	%	7.00	%	$	562,826	6.50	%	$	640,345
Tier 1 capital to average assets	8.02	%	7.86	%	4.00	%	$	826,556	5.00	%	$	621,171
Company regulatory capital ratios
Total capital to risk-weighted assets	14.19	%	14.14	%	10.50	%	$	575,442	10.00	%	$	653,444
Tier 1 capital to risk-weighted assets	11.71	%	11.55	%	8.50	%	$	500,624	6.00	%	$	890,630
CET1 to risk-weighted assets	10.23	%	10.06	%	7.00	%	$	504,128	N/A		N/A
Tier 1 capital to average assets	8.85	%	8.91	%	4.00	%	$	1,001,125	N/A		N/A
Company tangible common equity ratios(2)(3)
Tangible common equity to tangible assets	7.48	%	7.67	%	N/A		N/A		N/A		N/A
Tangible common equity to tangible assets,   excluding PPP loans	7.74	%	7.98	%	N/A		N/A		N/A		N/A
Tangible common equity, excluding   accumulated other comprehensive income (loss),   to tangible assets	7.50	%	7.54	%	N/A		N/A		N/A		N/A
Tangible common equity, excluding   accumulated other comprehensive income (loss),   to tangible assets, excluding PPP loans	7.77	%	7.85	%	N/A		N/A		N/A		N/A
Tangible common equity to risk-weighted   assets	9.92	%	9.93	%	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."

Regulatory capital ratios increased compared to December 31, 2020 as a result of retained earnings and the mix of risk-weighted assets, partially offset by the approximately 10 basis point impact of stock repurchases completed in the first six months of 2021. The Company elected the five-year CECL transition relief for regulatory capital, which retained approximately 30 basis points of CET1 and Tier 1 capital as of June 30, 2021.

In February 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 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 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 30 basis points of CET1 and Tier 1 capital as of June 30, 2021. 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.

63

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

During the first quarter of 2021, the Company announced that it would restart repurchases of its outstanding shares of common stock under its stock repurchase program after suspending repurchases in March 2020 as it shifted its capital deployment strategy in response to the pandemic. The Company repurchased 715,000 shares of its common stock at a total cost of $14.9 million during the six months ended June 30, 2021. The Company did not repurchase any shares of its common stock during the second quarter of 2021.

Dividends

The Board approved a quarterly cash dividend of $0.14 per common share during the second quarter of 2021, which is consistent with the fourth quarter of 2020. This dividend represents the 154th 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 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, non-accrual loans to total loans, excluding PPP loans, non-accrual loans to total loans, excluding PCD and PPP loans, non-performing loans to total loans, excluding PPP loans, non-performing loans to total loans, excluding PCD and PPP loans, non-performing assets to total loans plus foreclosed assets, excluding PPP loans, non-performing assets to total loans plus foreclosed assets, excluding PCD and PPP loans, net loan charge-offs, excluding PCD loans, and net loan charge-offs to average loans, excluding PPP loans, net loan charge-offs to average loans, excluding PCD and PPP loans, performing loans classified as substandard and special mention to average corporate loans, excluding PPP loans, and performing loans classified as substandard and special mention to average corporate loans, excluding PCD and PPP 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 optimization costs (second quarter and first six months of 2021), acquisition and integration related expenses associated with completed and pending transactions (all periods), and net securities losses (first quarter of 2020). 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 acquisition and integration related expenses and optimization costs. Management believes that excluding these items from noninterest expense may be useful in assessing the Company's underlying operational performance as these items either do not pertain to its 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.

64

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 income (loss) in stockholders' equity.

The Company presents non-accrual 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 performing loans classified as substandard and special mention to average corporate loans, all excluding PCD and/or PPP loans. Management believes excluding PCD and PPP loans is useful as it facilitates better comparability between periods as prior to the adoption of CECL on January 1, 2020, purchased credit impaired ("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 loans deemed to be uncollectible was recorded as a reduction of the credit-related acquisition adjustment, which was netted within loans. Subsequent to adoption, PCD loans, including those previously classified as PCI, are included in past due and non-accrual loan totals and an allowance for credit losses on PCD loans is established as of the acquisition date and the PCD loans are no longer recorded net of a credit-related acquisition adjustment. PCD loans deemed to be uncollectible are recorded as a charge-off through the allowance for credit losses. The Company began originating PPP loans during the second quarter of 2020 and the loans are fully guaranteed by the SBA and are expected to be forgiven if the applicable criteria are met. Additionally, management believes excluding PCD and PPP loans from these metrics may enhance comparability for peer comparison purposes.

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

65

Non-GAAP Reconciliations

(Amounts in thousands, except per share data)

	Quarters Ended   June 30,						Six Months Ended   June 30,
	2021			2020			2021			2020
EPS
Net income	$	51,121		$	19,064		$	96,144		$	38,670
Preferred dividends	(4,034)			(1,037)			(8,068)			(1,037)
Net income applicable to non-vested restricted shares	(521)			(187)			(1,007)			(379)
Net income applicable to common shares	46,566			17,840			87,069			37,254
Adjustments to net income:
Acquisition and integration related expenses	7,773			5,249			8,018			10,721
Tax effect of acquisition and integration related expenses	(1,943)			(1,312)			(2,004)			(2,680)
Optimization costs	31			—			1,556			—
Tax effect of optimization costs	(8)			—			(389)			—
Net securities losses	—			—			—			1,005
Tax effect of net securities losses	—			—			—			(251)
Total adjustments to net income, net of tax	5,853			3,937			7,181			8,795
Net income applicable to common shares, adjusted	$	52,419		$	21,777		$	94,250		$	46,049
Weighted-average common shares outstanding:
Weighted-average common shares outstanding (basic)	112,865			113,145			112,980			111,533
Dilutive effect of common stock equivalents	775			191			757			339
Weighted-average diluted common shares outstanding	113,640			113,336			113,737			111,872
Basic EPS	$	0.41		$	0.16		$	0.77		$	0.33
Diluted EPS	$	0.41		$	0.16		$	0.77		$	0.33
Diluted EPS, adjusted	$	0.46		$	0.19		$	0.83		$	0.41
Return on Average Assets
Net income	$	51,121		$	19,064		$	96,144		$	38,670
Total adjustments to net income, net of tax(1)	5,853			3,937			7,181			8,795
Net income, adjusted	$	56,974		$	23,001		$	103,325		$	47,465
Average assets	$	21,533,209		$	20,868,106		$	21,227,821		$	19,636,463
Return on average assets(2)(3)	0.95		%	0.37		%	0.91		%	0.40		%
Return on average assets, adjusted(1)(2)(3)	1.06		%	0.44		%	0.98		%	0.49		%
Note: Non-GAAP Reconciliations footnotes are located at the end of this section.

66

	Quarters Ended   June 30,						Six Months Ended   June 30,
	2021			2020			2021			2020
Return on Average Common and Tangible Common Equity
Net income applicable to common shares	$	46,566		17,840			$	87,069		$	37,254
Intangibles amortization	2,798			2,820			5,605			5,590
Tax effect of intangibles amortization	(700)			(705)			(1,401)			(1,398)
Net income applicable to common shares, excluding   intangibles amortization	48,664			19,955			91,273			41,446
Total adjustments to net income, net of tax(1)	5,853			3,937			7,181			8,795
Net income applicable to common shares, excluding   intangibles amortization, adjusted(1)	$	54,517		$	23,892		$	98,454		$	50,241
Average stockholders' common equity	$	2,456,034		$	2,443,212		$	2,454,651		$	2,429,184
Less: average intangible assets	(927,522)			(934,022)			(929,411)			(910,811)
Average tangible common equity	$	1,528,512		$	1,509,190		$	1,525,240		$	1,518,373
Return on average common equity(2)(3)	7.60		%	2.94		%	7.15		%	3.08		%
Return on average common equity, adjusted(1)(2)(3)	8.56		%	3.58		%	5.22		%	3.81		%
Return on average tangible common equity(2)(3)	12.77		%	5.32		%	12.07		%	5.49		%
Return on average tangible common equity, adjusted(1)(2)(3)	14.31		%	6.37		%	13.02		%	6.65		%
Note: Non-GAAP Reconciliations footnotes are located at the end of this section.

	Quarters Ended   June 30,						Six Months Ended   June 30,
	2021			2020			2021			2020
Efficiency Ratio Calculation
Noninterest expense	$	121,419		$	120,330		$	239,844		$	237,661
Less:
Acquisition and integration related expenses	(7,773)			(5,249)			(8,018)			(10,721)
Net OREO expense	(160)			(126)			(749)			(546)
Optimization costs	(31)			—			(1,556)			—
Total	$	113,455		$	114,955		$	229,521		$	226,394
Tax-equivalent net interest income(2)	$	145,241		$	146,389		$	287,339		$	291,117
Noninterest income	46,270			32,991			92,073			72,353
Less: net securities losses	—			—			—			1,005
Total	$	191,511		$	179,380		$	379,412		$	364,475
Efficiency ratio	59.24		%	64.08		%	60.49		%	62.12		%
Note: Non-GAAP Reconciliations footnotes are located at the end of this section.

67

	As of
	June 30, 2021			December 31, 2020
Tangible Common Equity
Stockholders' equity	$	2,473,648		$	2,459,506
Less: goodwill and other intangible assets	(926,176)			(932,764)
Tangible common equity	1,547,472			1,526,742
Less: AOCI	5,941			(26,379)
Tangible common equity, excluding AOCI	$	1,553,413		$	1,500,363
Total assets	$	21,625,424		$	20,838,678
Less: goodwill and other intangible assets	(926,176)			(932,764)
Tangible assets	20,699,248			19,905,914
Less: PPP loans	(705,915)			(785,563)
Tangible assets	$	19,993,333		$	19,120,351
Risk-weighted assets	$	15,600,262		$	15,380,240
Tangible common equity to tangible assets	7.48		%	7.67		%
Tangible common equity to tangible assets, excluding PPP loans	7.74		%	7.98		%
Tangible common equity, excluding AOCI, to tangible assets	7.50		%	7.54		%
Tangible common equity, excluding AOCI, to tangible assets, excluding PPP loans	7.77		%	7.85		%
Tangible common equity to risk-weighted assets	9.92		%	9.93		%

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 2020 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, 53% of the loan portfolio consisted of fixed rate loans and 47% were floating rate loans as of June 30, 2021, compared to 50% and 50% at December 31, 2020. See Note 11 of "Notes to the Condensed Consolidated Financial Statements" in Part I, Item 1 of this Form 10-Q for additional detail regarding interest rate swaps.

As of June 30, 2021, investments, consisting of securities and interest-bearing deposits in other banks, are more heavily weighted toward fixed rate securities at 72% of the total compared to 28% for floating rate interest-bearing deposits in other banks, compared to 78% of the total compared to 22% for the floating rate interest-bearing deposits in other banks at December 31, 2020. 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 $1.4 billion, or 20%, of the floating rate loan portfolio as of June 30, 2021 and 15% of December 31, 2020. On the liability side of the balance sheet, 89% and 87% of deposits as of June 30, 2021 and December 31, 2020 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 June 30, 2021
Dollar change	$	124,123		$	82,030		$	39,109		$	(19,393)
Percent change	21.7		%	14.3		%	6.8		%	(3.4)		%
As of December 31, 2020
Dollar change	$	119,586		$	80,601		$	39,751		$	(15,398)
Percent change	21.3		%	14.4		%	7.1		%	(2.7)		%

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 June 30, 2021 would increase net interest income by $39.1 million, or 6.8%, over the next twelve months compared to no change in interest rates. This same measure was $39.8 million, or 7.1%, as of December 31, 2020.

Overall, interest rate risk volatility as of June 30, 2021 was consistent with December 31, 2020 due to an increase in fixed rate loans and floating rate loans with active interest rate floors that was offset by increased balance sheet liquidity and reduced funding needs.

ITEM 4. CONTROLS AND PROCEDURES

As of the end of the period covered by this Form 10-Q (the "Evaluation Date"), the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chairman of the Board and Chief Executive Officer and its Executive Vice President and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Based on that evaluation, the Chairman of the Board and Chief Executive Officer and Executive Vice President and Chief Financial Officer concluded that as of the Evaluation Date, the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms. There were no changes in the Company's internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

At June 30, 2021, there were certain legal proceedings pending against the Company and its subsidiaries in the ordinary course of business. While the outcome of any legal proceeding is inherently uncertain, based on information currently available, the Company's management does not expect that any potential liabilities arising from pending legal matters will have a material adverse effect on the Company's business, financial 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 2020 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 2020 10-K, and the Company's other filings made with the SEC, as well as in other sections of such reports.

As a result of First Midwest entering into the merger agreement with Old National, certain risk factors have been identified:

First Midwest has incurred and is expected to incur substantial costs related to the merger with Old National (the "merger") and integration.

First Midwest has incurred and expects to incur a number of non-recurring costs associated with the merger. These costs include legal, financial advisory, accounting, consulting and other advisory fees, retention, severance and employee benefit-related costs, public company filing fees and other regulatory fees, financial printing and other printing costs, closing, integration and other related costs. Some of these costs are payable by First Midwest regardless of whether or not the merger is completed.

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Combining Old National and First Midwest may be more difficult, costly or time-consuming than expected, and First Midwest may fail to realize the anticipated benefits of the merger.

The success of the merger will depend, in part, on the ability to realize the anticipated cost savings from combining the businesses of Old National and First Midwest. To realize the anticipated benefits and cost savings from the merger, Old National and First Midwest must successfully integrate and combine their businesses in a manner that permits those cost savings to be realized without adversely affecting current revenues and future growth. If Old National and First Midwest are not able to successfully achieve these objectives, the anticipated benefits of the merger may not be realized fully or at all or may take longer to realize than expected. In addition, the actual cost savings of the merger could be less than anticipated, and integration may result in additional and unforeseen expenses.

An inability to realize the full extent of the anticipated benefits of the merger and the other transactions contemplated by the merger agreement, as well as any delays encountered in the integration process, could have an adverse effect upon the revenues, levels of expenses and operating results of the combined company following the completion of the merger, which may adversely affect the value of the common stock of the combined company following the completion of the merger.

Old National and First Midwest have operated and, until the completion of the merger, must continue to operate, independently. It is possible that the integration process could result in the loss of key employees, the disruption of each company’s ongoing businesses or inconsistencies in standards, controls, procedures and policies that adversely affect the companies’ ability to maintain relationships with clients, customers, depositors and employees or to achieve the anticipated benefits and cost savings of the merger. Integration efforts between the companies may also divert management attention and resources. These integration matters could have an adverse effect on First Midwest during this transition period and for an undetermined period after completion of the merger on the combined company.

Furthermore, the board of directors and executive leadership of the combined company will consist of former directors and executive officers from each of Old National and First Midwest. Combining the boards of directors and management teams of each company into a single board and a single management team could require the reconciliation of differing priorities and philosophies.

The combined company may be unable to retain Old National and/or First Midwest personnel successfully after the merger is completed.

The success of the merger will depend in part on the combined company’s ability to retain the talent and dedication of key employees currently employed by Old National and First Midwest. It is possible that these employees may decide not to remain with Old National or First Midwest, as applicable, while the merger is pending or with the combined company after the merger is consummated. If Old National and First Midwest are unable to retain key employees, including management, who are critical to the successful integration and future operations of the companies, Old National and First Midwest could face disruptions in their operations, loss of existing customers, loss of key information, expertise or know-how and unanticipated additional recruitment costs. In addition, following the merger, if key employees terminate their employment, the combined company’s business activities may be adversely affected, and management’s attention may be diverted from successfully hiring suitable replacements, all of which may cause the combined company’s business to suffer. Old National and First Midwest also may not be able to locate or retain suitable replacements for any key employees who leave either company.

The COVID-19 pandemic may delay and adversely affect the completion of the merger.

The COVID-19 pandemic has created economic and financial disruptions that have adversely affected, and are likely to continue to adversely affect, the business, financial condition, liquidity, capital and results of operations of First Midwest. If the effects of the COVID-19 pandemic cause a continued or extended decline in the economic environment and the financial results of First Midwest, or the business operations of First Midwest are further disrupted as a result of the COVID-19 pandemic, efforts to complete the merger and integrate the businesses of Old National and First Midwest may also be delayed and adversely affected. Additional time may be required to obtain the requisite regulatory approvals, and regulators may impose additional requirements on Old National or First Midwest that must be satisfied prior to completion of the merger, which could delay and adversely affect the completion of the merger.

Regulatory approvals may not be received, may take longer than expected, or may impose conditions that are not presently anticipated or that could have an adverse effect on the combined company following the merger.

Before the merger and the subsequent merger of First Midwest Bank and Old National Bank (the “bank merger”) may be completed, various approvals, consents and non-objections must be obtained from the Federal Reserve Board and the OCC and other regulatory authorities in the United States. In determining whether to grant these approvals, such regulatory authorities consider a variety of factors, including the regulatory standing of each party. These approvals could be delayed or not obtained at all, including due to an adverse development in either party’s regulatory standing or in any other factors considered by

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regulators when granting such approvals; governmental, political or community group inquiries, investigations or opposition; or changes in legislation or the political environment generally.

The approvals that are granted may impose terms and conditions, limitations, obligations or costs, or place restrictions on the conduct of the combined company’s business or require changes to the terms of the transactions contemplated by the merger agreement. There can be no assurance that regulators will not impose any such conditions, limitations, obligations or restrictions and that such conditions, limitations, obligations or restrictions will not have the effect of delaying the completion of any of the transactions contemplated by the merger agreement, imposing additional material costs on or materially limiting the revenues of the combined company following the merger or otherwise reducing the anticipated benefits of the merger if the merger were consummated successfully within the expected timeframe. In addition, there can be no assurance that any such conditions, terms, obligations or restrictions will not result in the delay or abandonment of the merger. Additionally, the completion of the merger is conditioned on the absence of certain orders, injunctions or decrees by any court or regulatory agency of competent jurisdiction that would prohibit or make illegal the completion of any of the transactions contemplated by the merger agreement.

In addition, despite the parties’ commitments to using their reasonable best efforts to comply with conditions imposed by regulators, under the terms of the merger agreement, neither Old National nor First Midwest, nor any of their respective subsidiaries, is permitted (without the written consent of the other party), to take any action, or commit to take any action, or agree to any condition or restriction, in connection with obtaining the required permits, consents, approvals and authorizations of governmental entities that would reasonably be expected to have a material adverse effect on the combined company and its subsidiaries, taken as a whole, after giving effect to the merger and the bank merger.

Failure to complete the merger could negatively impact First Midwest.

If the merger is not completed for any reason, including as a result of Old National shareholders failing to approve the Old National merger proposal or First Midwest stockholders failing to approve the First Midwest merger proposal at each company’s respective special meeting to be held on September 15, 2021, there may be various adverse consequences and First Midwest may experience negative reactions from the financial markets and from its customers and employees. For example, First Midwest’s business may have been impacted adversely by the failure to pursue other beneficial opportunities due to the focus of management on the merger, without realizing any of the anticipated benefits of completing the merger. Additionally, if the merger agreement is terminated, the market price of First Midwest common stock could decline to the extent that current market prices reflect a market assumption that the merger will be beneficial and will be completed. First Midwest also could be subject to litigation related to any failure to complete the merger or to proceedings commenced against First Midwest to perform its obligations under the merger agreement. If the merger agreement is terminated under certain circumstances, First Midwest may be required to pay a termination fee of $97 million to Old National.

Additionally, First Midwest has incurred and will incur substantial expenses in connection with the negotiation and completion of the transactions contemplated by the merger agreement, as well as the costs and expenses of preparing, filing, printing and mailing the joint proxy statement/prospectus, and all filing and other fees paid in connection with the merger. If the merger is not completed, First Midwest would have to pay these expenses without realizing the expected benefits of the merger.

First Midwest will be subject to business uncertainties and contractual restrictions while the merger is pending.

Uncertainty about the effect of the merger on employees and customers may have an adverse effect on First Midwest. These uncertainties may impair First Midwest’s ability to attract, retain and motivate key personnel until the merger is completed, and could cause customers and others that deal with First Midwest to seek to change existing business relationships with First Midwest. In addition, subject to certain exceptions, First Midwest has agreed to operate its business in the ordinary course in all material respects and to refrain from taking certain actions that may adversely affect its ability to consummate the transactions contemplated by the merger agreement on a timely basis without the consent of Old National. These restrictions may prevent First Midwest from pursuing attractive business opportunities that may arise prior to the completion of the merger.

Shareholder litigation related to the merger could prevent or delay the completion of the merger, result in the payment of damages or otherwise negatively impact the business and operations of First Midwest.

A civil litigation related to the merger has been filed against First Midwest. Among other remedies, this civil litigation seeks, and additional litigation related to the merger in the future may seek, damages and/or to enjoin the merger. While First Midwest believes that the claims asserted in the civil litigation are without merit, if any plaintiff were successful in obtaining an injunction prohibiting First Midwest or Old National from completing the merger or any other transactions contemplated by the merger agreement, then such injunction may delay or prevent the effectiveness of the merger and could result in costs to First Midwest, including costs in connection with the defense or settlement of any stockholder lawsuits filed in connection with the merger. Further, such lawsuits and the defense or settlement of any such lawsuits may have an adverse effect on the financial condition and results of operations of First Midwest.

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The merger agreement may be terminated in accordance with its terms and the merger may not be completed.

The merger agreement is subject to a number of conditions which must be fulfilled in order to complete the merger. Those conditions include: (i) approval by First Midwest stockholders of the First Midwest merger proposal and the approval by Old National shareholders of the Old National merger proposal at each company’s respective special meeting to be held on September 15, 2021; (ii) authorization for listing on NASDAQ of the shares of Old National common stock and new Old National preferred stock to be issued in the merger, subject to official notice of issuance; (iii) the receipt of required regulatory approvals, including the approval of the Federal Reserve Board and the OCC; and (iv) the absence of any order, injunction, decree or other legal restraint preventing the completion of the merger, the bank merger or any of the other transactions contemplated by the merger agreement or making the completion of the merger, the bank merger or any of the other transactions contemplated by the merger agreement illegal. Each party’s obligation to complete the merger is also subject to certain additional customary conditions, including (a) subject to applicable materiality standards, the accuracy of the representations and warranties of the other party, (b) the performance in all material respects by the other party of its obligations under the merger agreement, (c) the receipt by each party of an opinion from its counsel to the effect that the merger will qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986 and (d) the execution and delivery of the bank merger agreement.

These conditions to the closing may not be fulfilled in a timely manner or at all, and, accordingly, the merger may not be completed. In addition, the parties can mutually decide to terminate the merger agreement at any time, before or after the requisite shareholder and stockholder approvals, or Old National or First Midwest may elect to terminate the merger agreement in certain other circumstances.

Because the market price of Old National common stock may fluctuate, First Midwest stockholders cannot be certain of the market value of the merger consideration they will receive.

In the merger, each share of First Midwest common stock issued and outstanding immediately prior to the effective time, will be converted into 1.1336 shares of Old National common stock. This exchange ratio is fixed and will not be adjusted for changes in the market price of either Old National common stock or First Midwest common stock. Changes in the price of Old National common stock between now and the time of the merger will affect the value that First Midwest stockholders will receive in the merger. Neither Old National nor First Midwest is permitted to terminate the merger agreement as a result of any increase or decrease in the market price of Old National common stock or First Midwest common stock.

Stock price changes may result from a variety of factors, including general market and economic conditions, changes in Old National’s and First Midwest’s businesses, operations and prospects, the recent volatility in the prices of securities in global financial markets, including market prices of Old National, First Midwest and other banking companies, the effects of the COVID-19 pandemic and regulatory considerations and tax laws, many of which are beyond Old National’s and First Midwest’s control. Therefore, First Midwest stockholders will not know the market value of the consideration that they will receive until the effective time.

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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 second quarter of 2021. 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 shares of common stock through December 31, 2021. The Company repurchased $14.9 million during the first six months of 2021 and did not repurchase any shares of its common stock during the second quarter of 2021 under the stock repurchase program. Purchases below consist of shares acquired pursuant to the Company's share-based compensation plans.

Issuer Purchases of Equity Securities

	Total Number of Shares Purchased(1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of a Publicly Announced Plan or Program	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plan or Program
April 1 - April 30, 2021	1,149	$	21.57	—	$	173,529,294
May 1 - May 31, 2021	2,599	21.16		—	173,529,294
June 1 - June 30, 2021	377	20.92		—	173,529,294
Total	4,125	$	21.25	—

(1)Consists of shares acquired pursuant to 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
2.1	Agreement and Plan of Merger, dated May 30, 2021, by and between the Company and Old National Bancorp is incorporated herein by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on June 2, 2021.(2)
10.1	Letter Agreement, dated May 30, 2021, by and between the Company and Michael L. Scudder is incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on June 2, 2021.(3)
10.2	Letter Agreement, dated May 30, 2021, by and between the Company and Mark G. Sander is incorporated herein by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on June 2, 2021.(3)
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1(1)	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2(1)	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	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)Furnished, not filed.

(2)Schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule will be furnished to the Securities and Exchange Commission upon request; provided, however, that the parties may request confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, for any document so furnished.

(3)Management contract or compensatory plan or arrangement.

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SIGNATURES

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

                      First Midwest Bancorp, Inc.
 

                         /s/ PATRICK S. BARRETT

                               Patrick S. Barrett
    Executive Vice President and Chief Financial Officer*

Date: August 4, 2021

* Duly authorized to sign on behalf of the registrant.

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