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 September 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 October 25, 2021, there were 114,159,965 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	40
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	71
ITEM 4.	Controls and Procedures	72
Part II.	OTHER INFORMATION
ITEM 1.	Legal Proceedings	72
ITEM 1A.	Risk Factors	72
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	76
ITEM 6.	Exhibits	77

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)

					September 30, 2021		December 31, 2020
Assets					(Unaudited)
Cash and due from banks					$	270,020	$	196,364
Interest-bearing deposits in other banks					1,654,917		920,880
Equity securities, at fair value					114,848		76,404
Securities available-for-sale, at fair value					3,212,908		3,096,408
Securities held-to-maturity, at amortized cost, net					10,853		12,071
Federal Home Loan Bank ("FHLB") and Federal Reserve Bank ("FRB") stock, at cost					106,090		117,420
Loans					14,788,732		14,751,232
Allowance for loan losses					(206,241)		(239,017)
Net loans					14,582,491		14,512,215
Other real estate owned ("OREO")					5,106		8,253
Premises, furniture, and equipment, net					123,413		132,045
Investment in bank-owned life insurance ("BOLI")					300,387		301,101
Goodwill and other intangible assets					923,383		932,764
Accrued interest receivable and other assets					473,764		532,753
Total assets					$	21,778,180	$	20,838,678
Liabilities
Noninterest-bearing deposits					$	6,097,698	$	5,797,899
Interest-bearing deposits					11,100,704		10,214,565
Total deposits					17,198,402		16,012,464
Borrowed funds					1,274,572		1,546,414
Senior and subordinated debt					235,383		234,768
Accrued interest payable and other liabilities					346,600		355,026
Total liabilities					19,054,957		18,148,672
Stockholders' Equity
Preferred stock					230,500		230,500
Common stock					1,254		1,254
Additional paid-in capital					1,273,148		1,275,492
Retained earnings					1,479,481		1,388,525
Accumulated other comprehensive income (loss), net of tax					(25,381)		26,379
Treasury stock, at cost					(235,779)		(232,144)
Total stockholders' equity					2,723,223		2,690,006
Total liabilities and stockholders' equity					$	21,778,180	$	20,838,678
	September 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		125,380		231		125,367
Shares outstanding	231		114,167		231		114,296
Treasury shares	—		11,213		—		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   September 30,				Nine Months Ended   September 30,
	2021		2020		2021		2020
Interest Income
Loans	$	136,939	$	138,228	$	406,817	$	426,833
Investment securities	15,659		19,082		47,583		59,706
Other short-term investments	2,074		1,775		5,422		4,817
Total interest income	154,672		159,085		459,822		491,356
Interest Expense
Deposits	2,863		6,837		9,451		34,031
Borrowed funds	3,146		6,021		9,365		15,018
Senior and subordinated debt	3,467		3,498		10,407		10,769
Total interest expense	9,476		16,356		29,223		59,818
Net interest income	145,196		142,729		430,599		431,538
Provision for loan losses	—		15,927		6,098		88,108
Net interest income after provision for loan losses	145,196		126,802		424,501		343,430
Noninterest Income
Wealth management fees	14,820		12,837		43,524		37,140
Service charges on deposit accounts	11,496		10,342		32,254		31,248
Mortgage banking income	6,664		6,659		23,600		11,924
Card-based fees	4,992		4,472		14,312		11,620
Capital market products income	1,333		886		5,376		6,302
Other service charges, commissions, and fees	2,832		2,823		8,416		7,583
Swap termination costs	—		(14,285)		—		(14,285)
Net securities gains	—		14,328		—		13,323
Other income	3,043		2,523		9,771		8,083
Total noninterest income	45,180		40,585		137,253		112,938
Noninterest Expense
Salaries and employee benefits	62,427		64,734		193,039		191,265
Net occupancy and equipment expense	14,198		13,736		42,604		43,079
Technology and related costs	10,742		10,416		31,479		28,817
Professional services	6,991		7,325		22,618		26,595
Net OREO expense	(4)		544		745		1,090
Other expenses	18,784		15,062		52,923		47,911
Acquisition and integration related expenses	2,916		881		10,934		11,602
Optimization costs	—		18,376		1,556		18,376
Total noninterest expense	116,054		131,074		355,898		368,735
Income before income tax expense	74,322		36,313		205,856		87,633
Income tax expense	19,459		8,690		54,849		21,340
Net income	$	54,863	$	27,623	$	151,007	$	66,293
Preferred dividends	(4,033)		(4,033)		(12,101)		(5,070)
Net income applicable to unvested restricted shares	(517)		(236)		(1,524)		(615)
Net income applicable to common shareholders	$	50,313	$	23,354	$	137,382	$	60,608
Per Common Share Data
Basic earnings per common share	$	0.45	$	0.21	$	1.22	$	0.54
Diluted earnings per common share	$	0.44	$	0.21	$	1.21	$	0.54
Dividends declared per common share	$	0.14	$	0.14	$	0.42	$	0.42
Weighted-average common shares outstanding	112,898		113,160		112,953		112,079
Weighted-average diluted common shares outstanding	113,776		113,436		113,742		112,401

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   September 30,				Nine Months Ended   September 30,
	2021		2020		2021		2020
Net income	$	54,863	$	27,623	$	151,007	$	66,293
Securities Available-for-Sale
Unrealized holding (losses) gains:
Before tax	(24,763)		(4,142)		(65,305)		54,683
Tax effect	6,837		1,138		18,017		(15,214)
Net of tax	(17,926)		(3,004)		(47,288)		39,469
Reclassification of net losses included in net income:
Before tax	—		14,328		—		13,323
Tax effect	—		(4,012)		—		(3,730)
Net of tax	—		10,316		—		9,593
Net unrealized holding (losses) gains	(17,926)		(13,320)		(47,288)		29,876
Derivative Instruments
Unrealized holding losses:
Before tax	(2,091)		28,614		(6,173)		11,274
Tax effect	577		(7,987)		1,701		(3,162)
Net of tax	(1,514)		20,627		(4,472)		8,112
Reclassification of net losses included in net income:
Before tax	—		(14,285)		—		(14,285)
Tax effect	—		4,000		—		4,000
Net of tax	—		(10,285)		—		(10,285)
Net unrealized holding (losses) gains	(1,514)		10,342		(4,472)		(2,173)
Total other comprehensive (loss) income	(19,440)		(2,978)		(51,760)		27,703
Total comprehensive income (loss)	$	35,423	$	24,645	$	99,247	$	93,996

	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	29,876		(2,173)		—		27,703
Balance at September 30, 2020	$	45,684	$	(1,354)	$	(18,581)	$	25,749
Balance at December 31, 2020	$	38,328	$	10,179	$	(22,128)	$	26,379
Other comprehensive loss	(47,288)		(4,472)		—		(51,760)
Balance at September 30, 2021	$	(8,960)	$	5,707	$	(22,128)	$	(25,381)

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 September 30, 2020
Beginning balance	114,276	$	230,500	$	1,253	$	1,268,647	$	1,359,407	$	28,727	$	(232,323)	$	2,656,211
Net income	—	—		—		—		27,623		—		—		27,623
Other comprehensive loss	—	—		—		—		—		(2,978)		—		(2,978)
Preferred dividends	—	—		—		—		(4,033)		—		—		(4,033)
Common dividends declared   ($0.14 per common share)	—	—		—		—		(16,011)		—		—		(16,011)
Preferred stock issued	—	—		—		(265)		—		—		—		(265)
Common stock issued	6	—		1		76		—		—		—		77
Restricted stock activity	18	—		—		(131)		—		—		203		72
Treasury stock issued to   benefit plans	11	—		—		(33)		—		—		(57)		(90)
Share-based compensation   expense	(18)	—		—		3,565		—		—		—		3,565
Balance at September 30, 2020	114,293	$	230,500	$	1,254	$	1,271,859	$	1,366,986	$	25,749	$	(232,177)	$	2,664,171
Quarter Ended September 30, 2021
Beginning balance	114,177	$	230,500	$	1,254	$	1,269,192	$	1,444,625	$	(5,941)	$	(235,482)	$	2,704,148
Net income	—	—		—		—		54,863		—		—		54,863
Other comprehensive loss	—	—		—		—		—		(19,440)		—		(19,440)
Preferred dividends	—	—		—		—		(4,033)		—		—		(4,033)
Common dividends declared   ($0.14 per common share)	—	—		—		—		(15,974)		—		—		(15,974)
Common stock issued	4	—		—		73		—		—		1		74
Restricted stock activity	(26)	—		—		487		—		—		(516)		(29)
Treasury stock issued to   benefit plans	12	—		—		14		—		—		218		232
Share-based compensation   expense	—	—		—		3,382		—		—		—		3,382
Balance at September 30, 2021	114,167	$	230,500	$	1,254	$	1,273,148	$	1,479,481	$	(25,381)	$	(235,779)	$	2,723,223

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
Nine Months Ended September 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	—	—		—		—		66,293		—		—		66,293
Other comprehensive income	—	—		—		—		—		27,703		—		27,703
Preferred dividends	—	—		—		—		(5,070)		—		—		(5,070)
Common dividends declared   ($0.42 per common share)	—	—		—		—		(48,028)		—		—		(48,028)
Repurchases of common   stock	(1,171)	—		—		—		—		—		(22,557)		(22,557)
Acquisitions, net of issuance   costs	4,930	—		49		71,834		—		—		—		71,883
Preferred stock issued	—	230,500		—		(9,453)		—		—		—		221,047
Common stock issued	49	—		1		327		—		—		679		1,007
Restricted stock activity	531	—		—		(13,311)		—		—		10,248		(3,063)
Treasury stock issued to   benefit plans	—	—		—		(54)		—		—		(204)		(258)
Share-based compensation   expense	(18)	—		—		11,242		—		—		—		11,242
Balance at September 30, 2020	114,293	$	230,500	$	1,254	$	1,271,859	$	1,366,986	$	25,749	$	(232,177)	$	2,664,171
Nine Months Ended September 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	—	—		—		—		151,007		—		—		151,007
Other comprehensive loss	—	—		—		—		—		(51,760)		—		(51,760)
Preferred dividends	—	—		—		—		(12,101)		—		—		(12,101)
Common dividends declared   ($0.42 per common share)	—	—		—		—		(47,950)		—		—		(47,950)
Repurchases of common   stock	(715)	—		—		—		—		—		(14,929)		(14,929)
Common stock issued	73	—		—		129		—		—		1,044		1,173
Restricted stock activity	500	—		—		(14,047)		—		—		10,016		(4,031)
Treasury stock issued to   benefit plans	13	—		—		35		—		—		234		269
Share-based compensation   expense	—	—		—		11,539		—		—		—		11,539
Balance at September 30, 2021	114,167	$	230,500	$	1,254	$	1,273,148	$	1,479,481	$	(25,381)	$	(235,779)	$	2,723,223

(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)

	Nine Months Ended   September 30,
	2021		2020
Operating Activities
Net income	$	151,007	$	66,293
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	6,098		88,108
Depreciation of premises, furniture, and equipment	11,149		12,540
Net amortization of premium on securities	15,465		16,203
Net securities gains	—		(13,323)
Gains on sales of 1-4 family mortgages and corporate loans held-for-sale	(22,205)		(14,091)
Net (gains) losses on sales and valuation adjustments of OREO	(141)		221
Amortization of the FDIC indemnification asset	—		892
Net (gains) losses on sales and valuation adjustments of premises, furniture, and equipment	(1,103)		9,033
BOLI income	(5,222)		(5,503)
Share-based compensation expense	11,539		11,242
Tax benefit related to share-based compensation	377		271
Amortization of other intangible assets	8,398		8,400
Originations of mortgage loans held-for-sale	(664,682)		(592,196)
Proceeds from sales of mortgage loans held-for-sale	713,775		551,105
Net increase in equity securities	(38,444)		(12,885)
Net decrease (increase) in accrued interest receivable and other assets	44,031		(111,925)
Net (decrease) increase in accrued interest payables and other liabilities	(7,508)		80,487
Net cash provided by operating activities	222,534		94,872
Investing Activities
Proceeds from maturities, repayments, and calls of securities available-for-sale	774,225		986,145
Proceeds from sales of securities available-for-sale	34,834		281,869
Purchases of securities available-for-sale	(1,006,329)		(1,499,176)
Proceeds from maturities, repayments, and calls of securities held-to-maturity	1,218		9,934
Purchases of securities held-to-maturity	—		(10,050)
Net sales (purchases) of FHLB stock	11,330		(22,711)
Net increase in loans	(74,022)		(1,078,458)
Premiums paid on BOLI, net of proceeds from claims	5,936		3,922
Proceeds from sales of OREO	3,288		3,709
Proceeds from sales of premises, furniture, and equipment	3,908		1,132
Purchases of premises, furniture, and equipment	(5,321)		(7,680)
Net cash received from acquisition	—		142,282
Net cash used in investing activities	(250,933)		(1,189,082)
Financing Activities
Net increase in deposit accounts	1,185,938		1,570,219
Net (decrease) increase in borrowed funds	(271,842)		286,890
Swap termination costs	—		(14,285)
Net proceeds from the issuance of preferred stock	—		221,047
Repurchases of common stock	(14,929)		(22,557)
Cash dividends paid	(60,088)		(52,522)
Restricted stock activity	(2,987)		(3,063)
Net cash provided by financing activities	836,092		1,985,729
Net increase in cash and cash equivalents	807,693		891,519
Cash and cash equivalents at beginning of period	1,117,244		299,221
Cash and cash equivalents at end of period	$	1,924,937	$	1,190,740

8

FIRST MIDWEST BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS – (Continued)

(Dollar amounts in thousands)

(Unaudited)

	Nine Months Ended   September 30,
	2021		2020
Supplemental Disclosures of Cash Flow Information:
Income taxes paid	$	41,507	$	40,012
Interest paid to depositors and creditors	31,134		65,198
Dividends declared, but unpaid	15,825		15,859
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 (from) loans held-for-sale	14,875		(243)
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 nine months ended September 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

On June 1, 2021, the Company and Old National Bancorp ("Old National"), the holding company for Old National Bank, jointly announced that they 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 of combined assets. The merger agreement 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 L. Scudder, Chairman and Chief Executive Officer ("CEO") of the Company, will serve as the Executive Chairman, and James C. Ryan III, Chairman and CEO of Old National Bancorp, will maintain his role as CEO. The merger agreement has been unanimously approved by the boards of directors, and has also been approved by approximately 99% of the votes cast at the shareholder meetings, of both companies.

As of the date of announcement, the overall transaction market value was approximately $6.5 billion. On August 19, 2021, the Office of the Comptroller of the Currency approved the application for the merger of First Midwest Bank and Old National Bank. Completion of the merger remains subject to regulatory approval by the Board of Governors of the Federal Reserve System and certain other customary closing conditions set forth in the merger agreement.

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 nine months ended September 30, 2021, these expenses totaled $2.9 million and $10.9 million, respectively, and, for the same periods in 2020, these expenses totaled $881,000 and $11.6 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 September 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	$	—	$	—	$	—	$	—	$	12,001	$	50	$	—	$	12,051
U.S. agency securities	675,866		1,434		(21,188)		656,112		654,321		3,129		(4,976)		652,474
Collateralized mortgage obligations   ("CMOs")	1,304,762		11,633		(20,851)		1,295,544		1,415,312		27,529		(4,323)		1,438,518
Other mortgage-backed securities   ("MBSs")	854,852		8,170		(6,926)		856,096		566,830		14,650		(640)		580,840
Municipal securities	216,744		8,776		(902)		224,618		224,446		11,573		(4)		236,015
Corporate debt securities	173,061		7,477		—		180,538		170,570		6,210		(270)		176,510
Total securities available-for-sale	$	3,225,285	$	37,490	$	(49,867)	$	3,212,908	$	3,043,480	$	63,141	$	(10,213)	$	3,096,408
Securities Held-to-Maturity
Municipal securities	$	10,853	$	—	$	(392)	$	10,461	$	12,291	$	—	$	(385)	$	11,906
Allowance for securities held-to-   maturity	(220)						$	(220)	(220)						$	(220)
Total securities held-to-maturity,   net	$	10,633	$	—	$	(392)	$	10,241	$	12,071	$	—	$	(385)	$	11,686
Equity Securities							$	114,848							$	76,404

Accrued interest receivable on the securities portfolio totaled $10.4 million and $11.9 million as of September 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 September 30, 2021
	Available-for-Sale				Held-to-Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
One year or less	$	115,656	$	115,178	$	1,857	$	1,790
After one year to five years	157,219		156,570		4,495		4,333
After five years to ten years	792,796		789,520		1,953		1,882
After ten years	—		—		2,548		2,456
Securities that do not have a single contractual maturity date	2,159,614		2,151,640		—		—
Total	$	3,225,285	$	3,212,908	$	10,853	$	10,461

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 $2.1 billion as of September 30, 2021 and $1.6 billion as of December 31, 2020. No securities held-to-maturity were pledged as of September 30, 2021 or December 31, 2020.

There were no material realized gains (losses) on securities available-for-sale for the quarters ended September 30, 2021 and the nine months ended September 30, 2021. There were $14.3 million and $13.3 million of realized gains for the quarter and nine months ended September 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 September 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 September 30, 2021
Securities Available-for-Sale
U.S. agency securities	74	$	331,843	$	10,834	$	216,769	$	10,354	$	548,612	$	21,188
CMOs	178	666,381		13,271		139,952		7,580		806,333		20,851
MBSs	85	349,060		5,751		59,373		1,175		408,433		6,926
Municipal securities	30	21,497		742		5,824		160		27,321		902
Total	367	$	1,368,781	$	30,598	$	421,918	$	19,269	$	1,790,699	$	49,867
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 September 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
	September 30, 2021		December 31, 2020
Commercial and industrial	$	4,705,458	$	4,578,254
Agricultural	349,159		364,038
Commercial real estate:
Office, retail, and industrial	1,765,592		1,861,768
Multi-family	1,082,941		872,813
Construction	595,204		612,611
Other commercial real estate	1,408,955		1,481,976
Total commercial real estate	4,852,692		4,829,168
Total corporate loans, excluding Paycheck Protection Program ("PPP") loans	9,907,309		9,771,460
PPP loans	384,100		785,563
Total corporate loans	10,291,409		10,557,023
Home equity	591,126		761,725
1-4 family mortgages	3,332,732		3,022,413
Installment	573,465		410,071
Total consumer loans	4,497,323		4,194,209
Total loans	$	14,788,732	$	14,751,232
Deferred loan fees included in total loans	$	8,688	$	9,696
Overdrawn demand deposits included in total loans	8,562		8,444

Accrued interest receivable on the loan portfolio totaled $51.6 million and $56.7 million as of September 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 nine months ended September 30, 2021 and 2020.

Loan Sales and Purchases

(Dollar amounts in thousands)

	Quarters Ended   September 30,				Nine Months Ended   September 30,
	2021		2020		2021		2020
Corporate loan sales
Proceeds from sales	$	—	$	50	$	17,227	$	4,648
Less book value of loans sold	—		65		17,177		4,542
Net (losses) gains on corporate loan sales(1)	—		(15)		50		106
1-4 family mortgage loan sales
Proceeds from sales	205,699		258,695		713,775		551,105
Less book value of loans sold	199,938		251,819		691,620		537,120
Net gains on 1-4 family mortgage loan sales(2)	5,761		6,876		22,155		13,985
Total net gains on loan sales	$	5,761	$	6,861	$	22,205	$	14,091
Corporate loan purchases(3)
Commercial and industrial	$	65,633	$	10,196	$	299,708	$	178,912
Office, retail, and industrial	1,198		—		8,636		—
Multi-family	7		—		26,136		—
Construction	5		3,692		1,041		7,589
Other commercial real estate	—		—		35,000		10,000
Total corporate loan purchases	$	66,843	$	13,888	$	370,521	$	196,501
Consumer loan purchases
Home equity	$	—	$	—	$	—	$	144,967
1-4 family mortgages	186,910		168,052		772,828		417,637
Installment	—		—		253,376		—
Total consumer loan purchases	$	186,910	$	168,052	$	1,026,204	$	562,604

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

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

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

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

6. ACQUIRED LOANS

The significant accounting policies related to acquired loans, which are classified as PCD and non-PCD at September 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 September 30, 2021 and December 31, 2020.

Acquired Loans(1)

(Dollar amounts in thousands)

	As of September 30, 2021						As of December 31, 2020
	PCD		Non-PCD		Total		PCD		Non-PCD		Total
Acquired loans	$	161,154	$	787,636	$	948,790	$	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 $206.2 million as of September 30, 2021 and $247.3 million as of December 31, 2020.

19

Total accretion on acquired loans for the quarter and nine months ended September 30, 2021 was $6.2 million and $19.4 million, respectively, and $8.0 million and $21.9 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 September 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 September 30, 2021
Commercial and industrial	$	4,687,711	$	6,475	$	11,272	$	17,747	$	4,705,458	$	14,616	$	722
Agricultural	344,374		1,388		3,397		4,785		349,159		6,682		—
Commercial real estate:
Office, retail, and industrial	1,738,178		15,351		12,063		27,414		1,765,592		20,632		—
Multi-family	1,077,754		2,085		3,102		5,187		1,082,941		3,450		—
Construction	592,433		920		1,851		2,771		595,204		1,851		—
Other commercial real estate	1,388,152		6,314		14,489		20,803		1,408,955		18,060		32
Total commercial real estate	4,796,517		24,670		31,505		56,175		4,852,692		43,993		32
Total corporate loans,   excluding PPP loans	9,828,602		32,533		46,174		78,707		9,907,309		65,291		754
PPP loans	384,100		—		—		—		384,100		—		—
Total corporate loans	10,212,702		32,533		46,174		78,707		10,291,409		65,291		754
Home equity	585,157		2,043		3,926		5,969		591,126		10,006		75
1-4 family mortgages	3,319,223		3,978		9,531		13,509		3,332,732		12,786		—
Installment	570,600		2,401		464		2,865		573,465		—		464
Total consumer loans	4,474,980		8,422		13,921		22,343		4,497,323		22,792		539
Total loans	$	14,687,682	$	40,955	$	60,095	$	101,050	$	14,788,732	$	88,083	$	1,293
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 nine months ended September 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 September 30, 2021
Beginning balance	$	116,396	$	17,992	$	3,459	$	4,924	$	20,058	$	51,772	$	8,625	$	223,226
Charge-offs	(7,081)		(673)		(1)		(1,153)		(857)		(1,992)		—		(11,757)
Recoveries	2,116		117		—		167		28		969		—		3,397
Net charge-offs	(4,965)		(556)		(1)		(986)		(829)		(1,023)		—		(8,360)
Provision for loan   losses and other	508		272		172		(210)		693		(1,435)		—		—
Ending balance	$	111,939	$	17,708	$	3,630	$	3,728	$	19,922	$	49,314	$	8,625	$	214,866
Quarter Ended September 30, 2020
Beginning balance	$	123,977	$	24,441	$	5,311	$	11,522	$	21,862	$	52,939	$	7,625	$	247,677
Allowance established   for acquired PCD   loans	(1,188)		—		—		—		—		—		—		(1,188)
Charge-offs	(6,853)		(1,344)		—		(4,889)		(1,823)		(2,629)		—		(17,538)
Recoveries	1,118		5		—		—		70		602		—		1,795
Net charge-offs	(5,735)		(1,339)		—		(4,889)		(1,753)		(2,027)		—		(15,743)
Provision for loan   losses and other	8,674		1,636		428		99		3,522		1,568		200		16,127
Ending balance	$	125,728	$	24,738	$	5,739	$	6,732	$	23,631	$	52,480	$	7,825	$	246,873
Nine Months Ended September 30, 2021
Beginning balance	$	119,954	$	24,078	$	5,709	$	6,674	$	24,309	$	58,293	$	8,025	$	247,042
Charge-offs	(26,688)		(9,048)		(5)		(1,371)		(1,928)		(7,661)		—		(46,701)
Recoveries	4,887		237		7		177		269		2,250		—		7,827
Net charge-offs	(21,801)		(8,811)		2		(1,194)		(1,659)		(5,411)		—		(38,874)
Provision for loan   losses and other	13,786		2,441		(2,081)		(1,752)		(2,728)		(3,568)		600		6,698
Ending balance	$	111,939	$	17,708	$	3,630	$	3,728	$	19,922	$	49,314	$	8,625	$	214,866
Nine Months Ended September 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	11,452		2,003		—		—		—		39		872		14,366
Charge-offs	(19,592)		(4,774)		(19)		(7,495)		(2,162)		(11,660)		—		(45,702)
Recoveries	3,097		20		5		—		226		1,574		—		4,922
Net charge-offs	(16,495)		(4,754)		(14)		(7,495)		(1,936)		(10,086)		—		(40,780)
Provision for loan   losses and other	47,782		8,223		2,406		2,230		7,732		19,735		200		88,308
Ending balance	$	125,728	$	24,738	$	5,739	$	6,732	$	23,631	$	52,480	$	7,825	$	246,873

(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 September 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 September 30, 2021
Commercial, industrial,   agricultural	$	14,580	$	4,993,501	$	46,536	$	5,054,617	$	1,499	$	105,470	$	4,970	$	111,939
Commercial real estate:
Office, retail, and industrial	12,498		1,719,005		34,089		1,765,592		384		13,902		3,422		17,708
Multi-family	2,171		1,074,323		6,447		1,082,941		—		3,555		75		3,630
Construction	1,154		582,683		11,367		595,204		—		3,406		322		3,728
Other commercial real estate	11,993		1,353,603		43,359		1,408,955		164		10,083		9,675		19,922
Total commercial real estate	27,816		4,729,614		95,262		4,852,692		548		30,946		13,494		44,988
Total corporate loans,   excluding PPP loans	42,396		9,723,115		141,798		9,907,309		2,047		136,416		18,464		156,927
PPP loans	—		384,100		—		384,100		—		—		—		—
Total corporate loans	42,396		10,107,215		141,798		10,291,409		2,047		136,416		18,464		156,927
Consumer	—		4,477,967		19,356		4,497,323		—		48,815		499		49,314
Allowance for unfunded   commitments	—		—		—		—		—		8,625		—		8,625
Total loans	$	42,396	$	14,585,182	$	161,154	$	14,788,732	$	2,047	$	193,856	$	18,963	$	214,866
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 September 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 September 30, 2021
Commercial and industrial	$	4,296	$	11,572	$	923	$	10,619
Agricultural	6,445		—		—		2,784
Commercial real estate:
Office, retail, and industrial	20,285		—		—		11,868
Multi-family	2,950		—		—		2,950
Construction	2,223		—		—		327
Other commercial real estate	30,952		—		—		6,475
Total commercial real estate	56,410		—		—		21,620
Total corporate loans	67,151		11,572		923		35,023
Home equity	96		—		—		96
1-4 family mortgages	1,130		—		—		—
Installment	—		—		—		—
Total consumer loans	1,226		—		—		96
Total loans	$	68,377	$	11,572	$	923	$	35,119
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 September 30, 2021 and December 31, 2020. PCD loans are excluded from this disclosure.

Loans Individually Evaluated by Class

(Dollar amounts in thousands)

	As of September 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	$	7,284	$	850	$	22,314	$	294	$	33,643	$	1,687	$	40,055	$	398
Agricultural	2,784		3,662		10,917		1,205		5,213		5,107		14,972		3,138
Commercial real estate:
Office, retail, and industrial	10,643		1,855		14,849		384		21,537		4,847		30,474		1,123
Multi-family	2,171		—		2,171		—		1,279		—		1,279		—
Construction	—		1,154		1,182		—		1,154		—		1,507		—
Other commercial real estate	2,593		9,400		12,863		164		12,822		914		14,240		171
Total commercial real estate	15,407		12,409		31,065		548		36,792		5,761		47,500		1,294
Total corporate loans	25,475		16,921		64,296		2,047		75,648		12,555		102,527		4,830
Consumer	—		—		—		—		—		—		—		—
Total non-accrual loans   individually evaluated	$	25,475	$	16,921	$	64,296	$	2,047	$	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 nine months ended September 30, 2021, was $291,000 and $864,000, respectively, and $1.0 million and $1.4 million 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 September 30, 2021 and net loan charge-offs for the nine months ended September 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	$	752,464	$	641,813	$	723,079	$	588,007	$	308,785	$	430,650	$	1,280,272	$	4,725,070
Special Mention(2)	2,370		894		26,523		37,174		20,750		32,822		36,094		156,627
Substandard(3)	252		2,039		21,011		64,985		22,195		19,296		21,844		151,622
Non-accrual(4)	—		1,046		1,587		2,432		2,141		13,128		964		21,298
Total commercial,   industrial,   agricultural	$	755,086	$	645,792	$	772,200	$	692,598	$	353,871	$	495,896	$	1,339,174	$	5,054,617
Commercial, industrial,   agricultural, net loan   charge-offs	$	—	$	835	$	4,738	$	4,745	$	9,770	$	(873)	$	2,586	$	21,801
Office, retail, and industrial:
Pass	$	139,452	$	138,270	$	205,148	$	157,894	$	238,194	$	727,319	$	14,479	$	1,620,756
Special Mention(2)	1,717		312		4,577		3,301		17,234		35,009		—		62,150
Substandard(3)	732		628		—		15,922		5,330		39,442		—		62,054
Non-accrual(4)	—		—		—		—		324		20,308		—		20,632
Total office, retail,   and industrial	$	141,901	$	139,210	$	209,725	$	177,117	$	261,082	$	822,078	$	14,479	$	1,765,592
Office, retail, and   industrial net loan   charge-offs	$	—	$	—	$	246	$	3,899	$	1,023	$	3,643	$	—	$	8,811
Multi-family:
Pass	$	220,347	$	154,304	$	153,338	$	80,207	$	117,350	$	277,778	$	18,237	$	1,021,561
Special Mention(2)	—		—		5,775		4,385		—		31,356		—		41,516
Substandard(3)	—		—		—		378		70		15,966		—		16,414
Non-accrual(4)	—		—		—		—		935		2,515		—		3,450
Total multi-family	$	220,347	$	154,304	$	159,113	$	84,970	$	118,355	$	327,615	$	18,237	$	1,082,941
Multi-family net loan   charge-offs	$	—	$	—	$	—	$	—	$	5	$	(7)	$	—	$	(2)
Construction:
Pass	$	62,941	$	135,694	$	89,579	$	133,832	$	62,946	$	73,511	$	24,970	$	583,473
Special Mention(2)	—		—		—		38		—		162		—		200
Substandard(3)	—		—		—		—		1,392		8,288		—		9,680
Non-accrual(4)	—		—		—		—		1,154		697		—		1,851
Total construction	$	62,941	$	135,694	$	89,579	$	133,870	$	65,492	$	82,658	$	24,970	$	595,204
Construction net loan   charge-offs	$	—	$	—	$	—	$	—	$	1,104	$	49	$	41	$	1,194
Other commercial real estate:
Pass	$	180,456	$	167,456	$	157,047	$	206,984	$	138,750	$	335,895	$	23,160	$	1,209,748
Special Mention(2)	—		—		24,396		12,462		10,464		22,403		—		69,725
Substandard(3)	—		—		1,912		30,358		20,727		58,183		242		111,422
Non-accrual(4)	—		—		—		205		1,056		16,658		141		18,060
Total other   commercial real   estate	$	180,456	$	167,456	$	183,355	$	250,009	$	170,997	$	433,139	$	23,543	$	1,408,955
Other commercial real   estate net loan charge-   offs	$	—	$	—	$	—	$	245	$	11	$	1,403	$	—	$	1,659

(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.

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Consumer Loan Portfolio by Origination Year

(Dollar amounts in thousands)

	2021(1)		2020		2019		2018		2017		Prior		Revolving Loans		Total
Home equity:
Performing	$	7,471	$	10,778	$	8,168	$	9,650	$	8,508	$	48,409	$	488,136	$	581,120
Non-accrual	—		—		62		453		223		7,049		2,219		10,006
Total home equity	$	7,471	$	10,778	$	8,230	$	10,103	$	8,731	$	55,458	$	490,355	$	591,126
Home equity net   loan charge-offs	$	—	$	—	$	—	$	27	$	(42)	$	(347)	$	(26)	$	(388)
1-4 family mortgages:
Performing	$	908,935	$	1,579,102	$	379,230	$	118,836	$	74,276	$	258,947	$	620	$	3,319,946
Non-accrual	—		982		380		627		636		10,161		—		12,786
Total 1-4 family   mortgages	$	908,935	$	1,580,084	$	379,610	$	119,463	$	74,912	$	269,108	$	620	$	3,332,732
1-4 family mortgages   net loan charge-offs	$	—	$	—	$	—	$	2	$	—	$	247	$	—	$	249
Installment:
Performing	$	165,389	$	132,025	$	108,820	$	74,939	$	31,654	$	18,255	$	42,383	$	573,465
Non-accrual	—		—		—		—		—		—		—		—
Total installment	$	165,389	$	132,025	$	108,820	$	74,939	$	31,654	$	18,255	$	42,383	$	573,465
Installment net loan   charge-offs	$	247	$	1,323	$	2,590	$	1,439	$	97	$	(182)	$	36	$	5,550

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

During the quarter and nine months ended September 30, 2021, $12.9 million and $34.0 million, respectively, and $5.2 million and $29.0 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 September 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 September 30, 2021						As of December 31, 2020
	Accruing		Non-accrual(1)		Total		Accruing		Non-accrual(1)		Total
Commercial and industrial	$	—	$	6,255	$	6,255	$	—	$	8,859	$	8,859
Agricultural	—		—		—		—		—		—
Commercial real estate:
Office, retail, and industrial	—		—		—		—		2,340		2,340
Multi-family	—		151		151		—		160		160
Construction	—		—		—		—		—		—
Other commercial real estate	155		—		155		184		—		184
Total commercial real estate	155		151		306		184		2,500		2,684
Total corporate loans	155		6,406		6,561		184		11,359		11,543
Home equity	29		103		132		31		116		147
1-4 family mortgages	355		217		572		598		228		826
Installment	—		—		—		—		—		—
Total consumer loans	384		320		704		629		344		973
Total loans	$	539	$	6,726	$	7,265	$	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 September 30, 2021, the Company has eligible modifications with outstanding balances totaling $40.6 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 September 30, 2021 and December 31, 2020 there were $245,000 and $140,000 of specific allowances, respectively, related to TDRs.

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

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

TDR Rollforward

(Dollar amounts in thousands)

	Quarters Ended   September 30,				Nine Months Ended   September 30,
	2021		2020		2021		2020
Accruing
Beginning balance	$	782	$	1,201	$	813	$	1,233
Additions	—		—		—		—
Net payments	(243)		(13)		(274)		(45)
Net transfers to non-accrual	—		(347)		—		(347)
Ending balance	539		841		539		841
Non-accrual
Beginning balance	7,403		12,093		11,703		20,514
Additions	—		11,636		—		11,636
Net payments	(677)		(5,886)		(3,951)		(8,205)
Charge-offs	—		(2,353)		(1,026)		(8,455)
Net transfers from accruing	—		347		—		347
Ending balance	6,726		15,837		6,726		15,837
Total TDRs	$	7,265	$	16,678	$	7,265	$	16,678

There were no commitments to lend additional funds to borrowers with TDRs as of September 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 September 30, 2021, the weighted-average remaining lease term on these leases was 9.2 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 September 30, 2021.

Lease Liability

(Dollar amounts in thousands)

	As of    September 30, 2021
Year Ending December 31,
2021	$	5,670
2022	22,517
2023	22,624
2024	22,502
2025	21,317
2026 and thereafter	96,149
Total minimum lease payments	190,779
Discount(1)	(23,349)
Lease liability(2)	$	167,430

(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 September 30, 2021.

As of September 30, 2021, right-of-use assets of $140.2 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 nine months ended September 30, 2021 and 2020.

Net Operating Lease Expense

(Dollar amounts in thousands)

	Quarters Ended   September 30,				Nine Months Ended   September 30,
	2021		2020		2021		2020
Lease expense charged to operations	$	4,558	$	4,739	$	13,610	$	14,253
Rental income from premises leased to others (1)	(71)		(158)		(293)		(556)
Net operating lease expense	$	4,487	$	4,581	$	13,317	$	13,697

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

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9.  BORROWED FUNDS

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

Summary of Borrowed Funds

(Dollar amounts in thousands)

	As of
	September 30, 2021		December 31, 2020
Securities sold under agreements to repurchase	$	124,044	$	141,886
FHLB advances	1,150,528		1,404,528
Total borrowed funds	$	1,274,572	$	1,546,414

Securities sold under agreements to repurchase generally mature within 1 to 90 days from the transaction date, are treated as financings, and are included as a liability in the Consolidated Statements of Financial Condition. Repurchase agreements are secured by U.S. treasury and agency securities which are held in third-party pledge accounts, if required. The securities underlying the agreements remain in the respective asset accounts. As of September 30, 2021, the Company did not have amounts at risk under repurchase agreements with any individual counterparty or group of counterparties that exceeded 10% of stockholders' equity.

The Bank is a member of the FHLB and has access to term financing from the FHLB. These advances are secured by designated assets that may include qualifying commercial real estate, residential and multi-family mortgages, home equity loans, and certain municipal and mortgage-backed securities. As of September 30, 2021, FHLB advances, including certain putable advances, had fixed interest rates that range from 0.00% to 1.97% and maturity dates that range from June 12, 2024 to March 4, 2030.

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

The following table presents short-term credit lines available for use, for which the Company did not have an outstanding balance as of September 30, 2021 and December 31, 2020.

Short-Term Credit Lines Available for Use

(Dollar amounts in thousands)

	As of
	September 30, 2021		December 31, 2020
FRB's Discount Window Primary Credit Program	$	857,758	$	864,867
Available federal funds lines	982,000		844,000
Correspondent bank line of credit	—		50,000

On September 27, 2016, the Company entered into a loan agreement with U.S. Bank National Association providing for a $50.0 million short-term, unsecured revolving credit facility. On September 26, 2020, the Company entered into a fourth amendment to this credit facility, which extended the maturity to September 26, 2021, at which time the facility was not renewed.

A discussion of terms relevant to senior and subordinated debt is presented in Note 13, "Senior and Subordinated Debt" to the Consolidated Financial Statements in the Company's 2020 10-K.

10. MATERIAL TRANSACTIONS AFFECTING STOCKHOLDERS' EQUITY

Issuance of Common Stock

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

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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 nine months ended September 30, 2021. The Company did not repurchase any shares of its common stock during the third quarter of 2021.

11. EARNINGS PER COMMON SHARE

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

Basic and Diluted EPS

(Amounts in thousands, except per share data)

	Quarters Ended   September 30,				Nine Months Ended   September 30,
	2021		2020		2021		2020
Net income	$	54,863	$	27,623	$	151,007	$	66,293
Preferred dividends	(4,033)		(4,033)		(12,101)		(5,070)
Net income applicable to unvested restricted shares	(517)		(236)		(1,524)		(615)
Net income applicable to common shares	$	50,313	$	23,354	$	137,382	$	60,608
Weighted-average common shares outstanding:
Weighted-average common shares outstanding (basic)	112,898		113,160		112,953		112,079
Dilutive effect of common stock equivalents	878		276		789		322
Weighted-average diluted common shares outstanding	113,776		113,436		113,742		112,401
Basic EPS	$	0.45	$	0.21	$	1.22	$	0.54
Diluted EPS	$	0.44	$	0.21	$	1.21	$	0.54

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12. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

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

Cash Flow Hedges

As of September 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 September 30, 2021. These derivative contracts are designated as cash flow hedges.

Cash Flow Hedges

(Dollar amounts in thousands)

	As of
	September 30, 2021			December 31, 2020
Gross notional amount outstanding	$	455,000		$	455,000
Derivative asset fair value in other assets(1)	460			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	0.08		%	0.15		%
Weighted-average maturity (in years)	0.75			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 September 30, 2021, the Company estimates that $5.8 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 September 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 $1.3 million and $5.4 million for the quarter and nine months ended September 30, 2021, and were $886,000 and $6.3 million for the quarter and nine months ended September 30, 2020.

Other Derivative Instruments

(Dollar amounts in thousands)

	As of
	September 30, 2021		December 31, 2020
Gross notional amount outstanding	$	4,564,808	$	4,491,398
Derivative asset fair value in other assets(1)	90,710		149,997
Derivative liability fair value in other liabilities(1)	(30,729)		(44,580)
Fair value of derivative(2)	32,262		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.

31

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 September 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 nine months ended September 30, 2021 and 2020.

Cash Flow Hedge Accounting on AOCI

(Dollar amounts in thousands)

	Quarters Ended   September 30,				Nine Months Ended   September 30,
	2021		2020		2021		2020
(Losses) gains recognized in other comprehensive income
Interest rate swaps in interest income	$	(119)	$	96	$	235	$	28,051
Interest rate swaps in interest expense	(28)		(239)		(730)		(13,924)
Reclassification of gains (losses) included in net income
Interest rate swaps in interest income	$	2,238	$	2,165	$	6,668	$	5,234
Interest rate swaps in interest expense	—		(16,350)		—		(16,350)

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

Hedge Income

(Dollar amounts in thousands)

	Quarters Ended   September 30,				Nine Months Ended   September 30,
	2021		2020		2021		2020
Cash Flow Hedges
Interest rate swaps in interest income	$	2,238	$	2,165	$	6,668	$	5,234
Interest rate swaps in interest expense	—		(16,350)		—		(16,350)
Total cash flow hedges	$	2,238	$	(14,185)	$	6,668	$	(11,116)

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 September 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.

32

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 September 30, 2021 and December 31, 2020.

Fair Value of Offsetting Derivatives

(Dollar amounts in thousands)

	As of September 30, 2021				As of December 31, 2020
	Assets		Liabilities		Assets		Liabilities
Gross amounts recognized	$	91,170	$	30,729	$	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)	91,170		30,729		153,704		44,581
Gross amounts not offset in the Consolidated Statements of   Financial Condition:
Offsetting derivative positions	(2,285)		(2,285)		(5,239)		(5,239)
Cash collateral pledged	—		(26,470)		—		(39,970)
Net credit exposure	$	88,885	$	1,974	$	148,465	$	(628)

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

As of September 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 September 30, 2021 and December 31, 2020 the Company was in compliance with these provisions.

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13. COMMITMENTS, GUARANTEES, AND CONTINGENT LIABILITIES

Credit Commitments and Guarantees

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

Contractual or Notional Amounts of Financial Instruments

(Dollar amounts in thousands)

	As of
	September 30, 2021		December 31, 2020
Commitments to extend credit:
Commercial, industrial, and agricultural	$	2,313,362	$	2,318,346
Commercial real estate	515,624		378,282
Home equity	608,440		611,640
Other commitments(1)	273,734		264,869
Total commitments to extend credit	$	3,711,160	$	3,573,137
Letters of credit	$	114,797	$	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 customer adequately completes the construction. Commercial letters of credit are issued to facilitate transactions between a customer and a third-party based on agreed upon terms.

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

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

Legal Proceedings

At September 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.

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14. FAIR VALUE

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

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

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

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

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

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

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

35

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 September 30, 2021						As of December 31, 2020
	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Assets
Equity securities	$	87,232	$	22,616	$	—	$	52,888	$	18,516	$	—
Securities available-for-sale
U.S. treasury securities	—		—		—		12,051		—		—
U.S. agency securities	—		656,112		—		—		652,474		—
CMOs	—		1,295,544		—		—		1,438,518		—
MBSs	—		856,096		—		—		580,840		—
Municipal securities	—		224,618		—		—		236,015		—
Corporate debt securities	—		180,538		—		—		176,510		—
Total securities available-for-sale	—		3,212,908		—		12,051		3,084,357		—
Mortgage servicing rights ("MSRs")(1)	—		—		6,306		—		—		4,899
Derivative assets(1)	—		91,170		—		—		153,704		—
Liabilities
Derivative liabilities(2)	$	—	$	30,729	$	—	$	—	$	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 September 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 $808.6 million and $766.1 million as of September 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 September 30, 2021 and December 31, 2020.

Significant Unobservable Inputs Used in the Valuation of MSRs

	As of
	September 30, 2021				December 31, 2020
Prepayment speed	2.4	%	-	15.4%	5.3	%	-	16.3%
Maturity (months)	14		-	82	13		-	71
Discount rate	9.5	%	-	15.0%	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 nine months ended September 30, 2021 and 2020 is presented in the following table.

Carrying Value of MSRs

(Dollar amounts in thousands)

	Quarters Ended   September 30,				Nine Months Ended   September 30,
	2021		2020		2021		2020
Beginning balance	$	6,269	$	4,464	$	4,899	$	5,858
New MSRs	267		727		1,834		1,628
Total gains (losses) included in earnings(1):
Changes in valuation inputs and assumptions	137		(432)		603		(2,090)
Other changes in fair value(2)	(367)		(301)		(1,030)		(938)
Ending balance(3)	$	6,306	$	4,458	$	6,306	$	4,458
Contractual servicing fees earned(1)	$	512	$	424	$	1,472	$	1,221

(1)Included in mortgage banking income in the Condensed Consolidated Statements of Income and related to assets held as of September 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 September 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)	$	—	$	—	$	25,198	$	—	$	—	$	21,246
OREO(2)	—		—		2,000		—		—		—
Loans held-for-sale(3)	—		—		15,725		—		—		44,965
Assets held-for-sale(4)	—		—		3,438		—		—		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 September 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 September 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
		September 30, 2021				December 31, 2020
	Fair Value Hierarchy Level	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Assets
Cash and due from banks	1	$	270,020	$	270,020	$	196,364	$	196,364
Interest-bearing deposits in other banks	2	1,654,917		1,654,917		920,880		920,880
Securities held-to-maturity	2	10,853		10,461		12,071		11,686
FHLB and FRB stock	2	106,090		106,090		117,420		117,420
Loans	3	14,582,491		14,425,048		14,512,215		14,614,029
Investment in BOLI	3	300,387		300,387		301,101		301,101
Accrued interest receivable	3	62,018		62,018		68,390		68,390
Liabilities
Deposits	2	$	17,198,402	$	17,199,593	$	16,012,464	$	16,007,133
Borrowed funds	2	1,274,572		1,274,572		1,546,414		1,546,414
Senior and subordinated debt	2	235,383		283,439		234,768		281,843
Accrued interest payable	2	2,915		2,915		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 September 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 nine months ended September 30, 2021 and 2020 and Consolidated Statements of Financial Condition as of September 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 nine months ended September 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

40

may differ, possibly materially, from the anticipated results or events indicated in these forward-looking statements. We caution 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, 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 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. 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 $384.1 million of these loans as of September 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 second 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 September 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

First Midwest and Old National Bank

On June 1, 2021, the Company and Old National Bancorp ("Old National"), the holding company for Old National Bank, jointly announced that they 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 of combined assets. The merger agreement 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 L. Scudder, Chairman and Chief Executive Officer ("CEO") of the Company, will serve as the Executive Chairman, and James C. Ryan III, Chairman and CEO of Old National Bancorp, will maintain his role as CEO. The merger agreement has been unanimously approved by the boards of directors, and has also been approved by approximately 99% of the votes cast at the shareholder meetings, of both companies.

As of the date of announcement, the overall transaction market value was approximately $6.5 billion. On August 19, 2021, the Office of the Comptroller of the Currency approved the application for the merger of First Midwest Bank and Old National Bank. Completion of the merger remains subject to regulatory approval by the Board of Governors of the Federal Reserve System and certain other customary closing conditions set forth in the merger agreement.

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PERFORMANCE OVERVIEW

Table 1

Selected Financial Data

(Amounts in thousands, except per share data)

	Quarters Ended   September 30,						Nine Months Ended   September 30,
	2021			2020			2021			2020
Operating Results
Interest income	$	154,672		$	159,085		$	459,822		$	491,356
Interest expense	9,476			16,356			29,223			59,818
Net interest income	145,196			142,729			430,599			431,538
Provision for loan losses	—			15,927			6,098			88,108
Noninterest income	45,180			40,585			137,253			112,938
Noninterest expense	116,054			131,074			355,898			368,735
Income before income tax expense	74,322			36,313			205,856			87,633
Income tax expense	19,459			8,690			54,849			21,340
Net income	$	54,863		$	27,623		$	151,007		$	66,293
Preferred dividends	(4,033)			(4,033)			(12,101)			(5,070)
Net income applicable to non-vested restricted shares	(517)			(236)			(1,524)			(615)
Net income applicable to common shares	$	50,313		$	23,354		$	137,382		$	60,608
Weighted-average diluted common shares outstanding	113,776			113,436			113,742			112,401
Diluted earnings per common share	$	0.44		$	0.21		$	1.21		$	0.54
Diluted earnings per common share, adjusted(1)	$	0.46		$	0.33		$	1.29		$	0.75
Performance Ratios
Return on average common equity(2)	7.97		%	3.80		%	7.43		%	3.33		%
Return on average common equity, adjusted(1)(2)	8.32		%	6.15		%	7.94		%	4.60		%
Return on average tangible common equity(2)	13.17		%	6.73		%	12.45		%	5.90		%
Return on average tangible common equity, adjusted(1)(2)	13.72		%	10.53		%	13.26		%	7.95		%
Return on average assets(2)	0.99		%	0.51		%	0.94		%	0.44		%
Return on average assets, adjusted(1)(2)	1.03		%	0.78		%	1.00		%	0.59		%
Tax-equivalent net interest margin(1)(2)(3)	2.91		%	2.95		%	2.97		%	3.19		%
Tax-equivalent net interest margin, adjusted(1)(2)(3)	2.79		%	2.79		%	2.83		%	3.03		%
Efficiency ratio(1)	59.12		%	60.36		%	60.03		%	61.52		%

(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									September 30, 2021   Change From
	September 30, 2021			December 31, 2020			September 30, 2020			December 31, 2020		September 30, 2020
Balance Sheet Highlights
Total assets	$	21,778,180		$	20,838,678		$	21,088,143		$	939,502	$	690,037
Total loans	14,788,732			14,751,232			14,653,188			37,500		135,544
Total deposits	17,198,402			16,012,464			15,771,573			1,185,938		1,426,829
Core deposits	15,435,797			14,002,139			13,563,809			1,433,658		1,871,988
Loans to deposits	86.0		%	92.1		%	92.9		%
Core deposits to total deposits	89.8		%	87.4		%	86.0		%
Asset Quality Highlights
Non-accrual loans, excluding purchased   credit deteriorated ("PCD") loans(1)	$	64,166		$	109,957		$	103,582		$	(45,791)	$	(39,416)
Non-accrual PCD loans	23,917			32,568			39,990			(8,651)		(16,073)
Total non-accrual loans	88,083			142,525			143,572			(54,442)		(55,489)
90 days or more past due loans, still   accruing interest	1,293			4,395			3,781			(3,102)		(2,488)
Total NPLs	89,376			146,920			147,353			(57,544)		(57,977)
Accruing troubled debt   restructurings ("TDRs")	539			813			841			(274)		(302)
Foreclosed assets(2)	26,375			16,671			15,299			9,704		11,076
Total non-performing assets ("NPAs")	$	116,290		$	164,404		$	163,493		$	(48,114)	$	(47,203)
30-89 days past due loans	$	30,718		$	40,656		$	21,551		$	(9,938)	$	9,167
NPAs to total loans plus foreclosed assets	0.78		%	1.11		%	1.11		%
NPAs to total loans plus foreclosed assets, excluding PCD and PPP loans(1)(3)	0.65		%	0.96		%	0.93		%
Allowance for Credit Losses
Allowance for credit losses	$	214,866		$	247,042		$	246,873		$	(32,176)	$	(32,007)
Allowance for credit losses to total loans	1.45		%	1.67		%	1.68		%
Allowance for credit losses to   total loans, excluding PPP loans(3)	1.49		%	1.77		%	1.83		%
Allowance for credit losses to   non-accrual loans	243.94		%	173.33		%	171.95		%

(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.

44

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 September 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 nine months ended September 30, 2021 and 2020.

45

Table 2

Net Interest Income and Margin Analysis

(Dollar amounts in thousands)

	Quarters Ended September 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	$	1,672,005	$	1,222	0.29	$	1,234,948	$	799	0.26	$	310	$	113	$	423
Securities(1)	3,265,812		16,189		1.98	3,291,724		19,721		2.40	(256)		(3,276)		(3,532)
Federal Home Loan Bank   ("FHLB") and Federal Reserve   Bank ("FRB") stock	106,759		852		3.19	150,033		976		2.60	(580)		456		(124)
Loans, excluding PPP loans(1)	14,364,785		127,631		3.53	13,558,857		131,680		3.86	9,368		(13,417)		(4,049)
PPP loans(1)	549,380		9,772		7.06	1,194,808		7,001		2.33	(1,001)		3,772		2,771
Total loans(1)(2)	14,914,165		137,403		3.66	14,753,665		138,681		3.74	8,367		(9,645)		(1,278)
Total interest-earning assets(1)(2)	19,958,741		155,666		3.10	19,430,370		160,177		3.28	7,841		(12,352)		(4,511)
Cash and due from banks	277,720					284,730
Allowance for loan losses	(215,395)					(243,667)
Other assets	1,878,494					2,055,262
Total assets	$	21,899,560				$	21,526,695
Liabilities and Stockholders' Equity
Savings deposits	$	2,785,816	124		0.02	$	2,342,355	104		0.02	20		—		20
NOW accounts	3,213,637		275		0.03	2,744,034		307		0.04	89		(121)		(32)
Money market deposits	3,211,355		549		0.07	2,781,666		724		0.10	144		(319)		(175)
Time deposits	1,800,493		1,915		0.42	2,302,019		5,702		0.99	(1,046)		(2,741)		(3,787)
Borrowed funds	1,281,968		3,146		0.97	2,436,922		6,021		0.98	(2,835)		(40)		(2,875)
Senior and subordinated debt	235,284		3,467		5.85	234,464		3,498		5.94	12		(43)		(31)
Total interest-bearing   liabilities	12,528,553		9,476		0.30	12,841,460		16,356		0.51	(3,616)		(3,264)		(6,880)
Demand deposits	6,272,903					5,631,355
Total funding sources	18,801,456				0.20	18,472,815				0.35
Other liabilities	364,576					378,786
Stockholders' equity	2,733,528					2,675,094
Total liabilities and   stockholders' equity	$	21,899,560				$	21,526,695
Tax-equivalent net interest   income/margin(1)			146,190		2.91			143,821		2.95	$	11,457	$	(9,088)	$	2,369
Tax-equivalent adjustment			(994)					(1,092)
Net interest income (GAAP)			$	145,196				$	142,729
Impact of acquired loan accretion			$	6,231	0.12			$	7,960	0.16
Tax-equivalent net interest income/   margin, adjusted(1)			$	139,959	2.79			$	135,861	2.79

(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 $88.1 million as of September 30, 2021 and $143.6 million as of September 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."

46

Table 3

Net Interest Income and Margin Analysis

(Dollar amounts in thousands)

	Nine Months Ended September 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	$	1,209,170	$	2,647	0.29	$	684,080	$	2,086	0.41	$	887	$	(326)	$	561
Securities(1)	3,208,454		49,206		2.04	3,238,954		61,518		2.53	(535)		(11,777)		(12,312)
FHLB and FRB stock	106,892		2,775		3.46	143,807		2,731		2.53	(102)		146		44
Loans, excluding PPP loans(1)	14,152,721		378,202		3.57	13,454,336		416,052		4.13	23,410		(61,260)		(37,850)
PPP loans(1)	864,816		29,922		4.63	696,095		12,369		2.37	3,577		13,976		17,553
Total loans(1)(2)	15,017,537		408,124		3.63	14,150,431		428,421		4.04	26,987		(47,284)		(20,297)
Total interest-earning assets(1)(2)	19,542,053		462,752		3.17	18,217,272		494,756		3.63	27,237		(59,241)		(32,004)
Cash and due from banks	261,187					273,960
Allowance for loan losses	(230,233)					(215,961)
Other assets	1,881,188					1,995,869
Total assets	$	21,454,195				$	20,271,140
Liabilities and Stockholders' Equity
Savings deposits	$	2,700,846	358		0.02	$	2,219,836	366		0.02	28		(36)		(8)
NOW accounts	3,023,237		787		0.03	2,522,903		2,574		0.14	648		(2,435)		(1,787)
Money market deposits	3,092,534		1,743		0.08	2,558,482		4,981		0.26	1,347		(4,585)		(3,238)
Time deposits	1,884,578		6,563		0.47	2,590,437		26,110		1.35	(5,746)		(13,801)		(19,547)
Borrowed funds	1,299,649		9,365		0.96	2,304,127		15,018		0.87	(7,459)		1,806		(5,653)
Senior and subordinated debt	235,080		10,407		5.92	234,260		10,769		6.14	38		(400)		(362)
Total interest-bearing   liabilities	12,235,924		29,223		0.32	12,430,045		59,818		0.64	(11,144)		(19,451)		(30,595)
Demand deposits	6,149,857					4,942,682
Total funding sources	18,385,781				0.21	17,372,727				0.46
Other liabilities	366,959					367,210
Stockholders' equity	2,701,455					2,531,203
Total liabilities and   stockholders' equity	$	21,454,195				$	20,271,140
Tax-equivalent net interest   income/margin(1)			433,529		2.97			434,938		3.19	$	38,381	$	(39,790)	$	(1,409)
Tax-equivalent adjustment			(2,930)					(3,400)
Net interest income (GAAP)			$	430,599				$	431,538
Impact of acquired loan   accretion			$	19,371	0.13			$	21,905	0.16
Tax-equivalent net interest income/   margin, adjusted(1)			$	414,158	2.84			$	413,033	3.03

(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 $88.1 million as of September 30, 2021 and $143.6 million as of September 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 third quarter was up 1.7% and consistent for the first nine months of 2021 compared to the same periods in 2020. Net interest income compared to both prior periods was impacted by lower interest rates and acquired loan accretion, offset by growth in loans, an increase in interest income and fees on PPP loans, and lower cost of funds. In addition, net interest income compared to the first nine months of 2020 was impacted by the acquisition of interest-earning assets from the Park Bank transaction that closed in March 2020.

47

Acquired loan accretion contributed $6.2 million and $19.4 million for the third quarter and first nine months of 2021, respectively, and $8.0 million and $21.9 million to net interest income for the same periods in 2020.

Tax-equivalent net interest margin for the third quarter and first nine months of 2021 was 2.91% and 2.97%, decreasing 4 and 22 basis points from the same periods in 2020. Excluding the impact of acquired loan accretion, tax-equivalent net interest margin was 2.79% and 2.84% for the third quarter and first nine months of 2021, consistent with the third quarter of 2020 and down 19 basis points from the first nine months of 2020. Compared to both prior periods, tax-equivalent net interest margin, adjusted, was impacted 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 third quarter and first nine months of 2021, total average interest-earning assets rose by $528.4 million and $1.3 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 nine months of 2020 was impacted by assets acquired in the Park Bank transaction.

Total average funding sources for the third quarter and first nine months of 2021 increased by $328.6 million and $1.0 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 nine months of 2020 was impacted by deposits assumed in the Park Bank transaction.

Noninterest Income

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

Table 4

Noninterest Income Analysis

(Dollar amounts in thousands)

	Quarters Ended   September 30,					Nine Months Ended   September 30,
	2021		2020		% Change	2021		2020		% Change
Wealth management fees	$	14,820	$	12,837	15.4	$	43,524	$	37,140	17.2
Service charges on deposit accounts	11,496		10,342		11.2	32,254		31,248		3.2
Mortgage banking income	6,664		6,659		0.1	23,600		11,924		97.9
Card-based fees, net(1)	4,992		4,472		11.6	14,312		11,620		23.2
Capital market products income	1,333		886		50.5	5,376		6,302		(14.7)
Other service charges, commissions, and   fees	2,832		2,823		0.3	8,416		7,583		11.0
Total fee-based revenues	42,137		38,019		10.8	127,482		105,817		20.5
Other income(2)	3,043		2,523		20.6	9,771		8,083		20.9
Swap termination costs	—		(14,285)		N/M	—		(14,285)		N/M
Net securities gains	—		14,328		(100.0)	—		13,323		(100.0)
Total noninterest income	$	45,180	$	40,585	11.3	$	137,253	$	112,938	21.5

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 for the third quarter and first nine months of 2021 was up 11.3% and 21.5% 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 service charges on deposit accounts, net card-based fees, and other service charges, commissions, and fees compared to the third quarter and first nine months of 2020 resulted from the impact of higher transaction volumes due to the 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 third quarter of 2020 and lower than the first nine months of 2020.

48

Mortgage banking income for the third quarter and first nine months of 2021 resulted from sales of $199.9 million and $691.6 million of 1-4 family mortgage loans in the secondary market compared to $251.8 million and $537.1 million in the third quarter and first nine months of 2020. Compared to both prior periods, mortgage banking income was impacted by an increase in market pricing on sales of 1-4 family mortgage loans.

Other income increased compared to the third quarter and first nine months of 2020 due to net gains from the disposition of branch properties and other miscellaneous items.

During the third quarter of 2020, the Company terminated longer term interest rate swaps with a notional amount of $1.1 billion as a result of excess liquidity and in response to current market conditions. At the same time, the Company liquidated $159.8 million of securities. As a result of these transactions, $14.3 million of pre-tax securities gains was fully offset by $14.3 million of pre-tax loss on swap terminations. In addition, net securities losses of $1.0 million were recognized during the first nine 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 nine months ended September 30, 2021 and 2020 is presented in the following table.

Table 5

Noninterest Expense Analysis

(Dollar amounts in thousands)

	Quarters Ended   September 30,					Nine Months Ended   September 30,
	2021		2020		% Change	2021		2020		% Change
Salaries and employee benefits:
Salaries and wages	$	51,503	$	53,385	(3.5)	$	157,083	$	155,967	0.7
Retirement and other employee benefits	10,924		11,349		(3.7)	35,956		35,298		1.9
Total salaries and employee benefits	62,427		64,734		(3.6)	193,039		191,265		0.9
Net occupancy and equipment expense	14,198		13,736		3.4	42,604		43,079		(1.1)
Technology and related costs	10,742		10,416		3.1	31,479		28,817		9.2
Professional services	6,991		7,325		(4.6)	22,618		26,595		(15.0)
Advertising and promotions	3,168		2,688		17.9	7,902		8,259		(4.3)
Net OREO expense	(4)		544		100.7	745		1,090		(31.7)
Other expenses	15,616		12,374		26.2	45,021		39,652		13.5
Acquisition and integration related   expenses	2,916		881		231.0	10,934		11,602		(5.8)
Optimization costs	—		18,376		N/M	1,556		18,376		(91.5)
Total noninterest expense	$	116,054	$	131,074	(11.5)	$	355,898	$	368,735	(3.5)
Acquisition and integration related   expenses	(2,916)		(881)		231.0	(10,934)		(11,602)		(5.8)
Optimization costs	—		(18,376)		N/M	(1,556)		(18,376)		(91.5)
Total noninterest expense, adjusted(1)	$	113,138	$	111,817	1.2	$	343,408	$	338,757	1.4

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 decreased 11.5% and 3.5% from the third quarter and first nine months of 2020, respectively. Noninterest expense for all periods was impacted by acquisition and integration related expenses and the first nine months of 2021 as well as both periods in 2020 were impacted by optimization costs. Excluding these items, noninterest expense for the third quarter and first nine months of 2021 was $113.1 million and $343.4 million, up 1.2% and 1.4% from the same periods in 2020. Overall, noninterest expense, adjusted, to average assets, excluding PPP loans, was 2.10% and 2.23% for the third quarter and first nine months of 2021, down 9 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 nine months of 2020. These costs primarily occurred in salaries and employee benefits, net occupancy and equipment expense, technology and related costs, and other expenses.

49

Salaries and employee benefits compared to both prior periods was impacted by higher equity compensation accruals and merit increases, more than offset by the ongoing benefits of optimization strategies for the third quarter of 2021. The increase in technology and related costs for the first nine months of 2021 was impacted by investments in technology, including the origination of PPP loans. Professional services expenses were elevated for the third quarter and first nine months of 2020 due to process enhancements and expenses associated with higher capital market products income. The decrease in net OREO expense compared to both prior periods resulted primarily from higher levels of gains on sales of properties. Other expenses for the third quarter and first nine months of 2021 was impacted by a valuation adjustment on a foreclosed asset as well as higher servicing fees from purchases of consumer loans and other miscellaneous expenses.

Optimization costs primarily include valuation adjustments related to locations identified for closure, modernization of our ATM network, advisory fees, employee severance, and other expenses associated with locations identified for closure.

Acquisition and integration related expenses for third quarter and first nine months of 2021 resulted primarily 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 nine months ended September 30, 2021 and 2020 is detailed in the following table.

Table 6

Income Tax Expense Analysis

(Dollar amounts in thousands)

	Quarters Ended   September 30,						Nine Months Ended   September 30,
	2021			2020			2021			2020
Income before income tax expense	$	74,322		$	36,313		$	205,856		$	87,633
Income tax expense:
Federal income tax expense	$	13,830		$	6,323		$	39,401		$	16,623
State income tax expense	5,629			2,367			15,448			4,717
Total income tax expense	$	19,459		$	8,690		$	54,849		$	21,340
Effective income tax rate	26.2		%	23.9		%	26.6		%	24.4		%

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 third quarter of 2021 and the first nine 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 nine months of 2020 was also impacted by $1.0 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.

50

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 September 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	$	—	$	—	$	—	—	$	12,001	$	50	$	12,051	0.4
U.S. agency securities	675,866		(19,754)		656,112		20.4	654,321		(1,847)		652,474		21.1
Collateralized mortgage   obligations ("CMOs")	1,304,762		(9,218)		1,295,544		40.3	1,415,312		23,206		1,438,518		46.5
Other mortgage-backed   securities ("MBSs")	854,852		1,244		856,096		26.6	566,830		14,010		580,840		18.8
Municipal securities	216,744		7,874		224,618		7.0	224,446		11,569		236,015		7.6
Corporate debt securities	173,061		7,477		180,538		5.6	170,570		5,940		176,510		5.7
Total securities   available-for-sale	$	3,225,285	$	(12,377)	$	3,212,908	100.0	$	3,043,480	$	52,928	$	3,096,408	100.0
Securities Held-to-Maturity
Municipal securities(1)	$	10,853	$	(392)	$	10,461		$	12,071	$	(385)	$	11,686
Equity Securities					$	114,848						$	76,404

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

Portfolio Composition

As of September 30, 2021, our securities available-for-sale portfolio totaled $3.2 billion, increasing $116.5 million, or 3.8%, 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 predictable cash flows.

51

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

Table 8

Securities Effective Duration Analysis

	As of September 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	—	%	—	—	%	0.20	%	0.23	2.45	%
U.S. agency securities	6.84	%	14.12	2.20	%	5.07	%	7.29	2.31	%
CMOs	4.71	%	6.55	1.75	%	3.19	%	3.84	1.99	%
MBSs	3.80	%	6.00	1.86	%	2.68	%	3.65	2.13	%
Municipal securities	5.21	%	5.75	2.80	%	4.66	%	4.84	2.81	%
Corporate debt securities	2.05	%	3.74	2.76	%	2.27	%	4.48	2.78	%
Total securities available-for-sale	4.81	%	7.79	2.00	%	3.54	%	4.64	2.19	%
Securities Held-to-Maturity
Municipal securities	4.66	%	5.76	4.64	%	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 7.79 years and 4.81%, respectively, as of September 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 nine months of 2021.

Realized Gains and Losses

There were no securities gains (losses) or impairment charges recognized during the third quarter and first nine months of 2021. There were $14.3 million and $13.3 million of securities gains for the third quarter and first nine months of 2020, as a result of repositioning of the securities portfolio due to market conditions in the first quarter of 2020 and balance sheet optimization strategies in the third quarter of 2020.

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 losses as of September 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 69.5% of total loans as of September 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

52

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.

Table 9

Loan Portfolio

(Dollar amounts in thousands)

	As of    September 30, 2021		% of Total Loans	As of December 31, 2020		% of Total Loans	% Change
Commercial and industrial	$	4,705,458	31.8	$	4,578,254	31.0	2.8
Agricultural	349,159		2.4	364,038		2.5	(4.1)
Commercial real estate:
Office, retail, and industrial	1,765,592		11.9	1,861,768		12.6	(5.2)
Multi-family	1,082,941		7.3	872,813		5.9	24.1
Construction	595,204		4.0	612,611		4.2	(2.8)
Other commercial real estate	1,408,955		9.5	1,481,976		10.0	(4.9)
Total commercial real estate	4,852,692		32.7	4,829,168		32.7	0.5
Total corporate loans, excluding PPP loans	9,907,309		66.9	9,771,460		66.2	1.4
PPP loans	384,100		2.6	785,563		5.3	(51.1)
Total corporate loans	10,291,409		69.5	10,557,023		71.5	(2.5)
Home equity	591,126		4.0	761,725		5.2	(22.4)
1-4 family mortgages	3,332,732		22.5	3,022,413		20.5	10.3
Installment	573,465		3.9	410,071		2.8	39.8
Total consumer loans	4,497,323		30.4	4,194,209		28.5	7.2
Total loans	$	14,788,732	99.9	$	14,751,232	100.0	0.3

Total loans includes loans originated under the PPP loan program beginning in the second quarter of 2020, which totaled $384.1 million and $785.6 million as of September 30, 2021 and December 31, 2020, respectively. Excluding these loans, total loans were up 4% annualized from December 31, 2020. Strong production and line usage within our middle market and sector-based lending businesses drove the 2% annualized growth in corporate loans, excluding PPP loans, which was partially offset by excess borrower liquidity and higher paydowns.

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 34.2% of total loans, and totaled $5.1 billion at September 30, 2021, a decrease of $112.3 million, or 2.3%, 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.

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Commercial Real Estate Loans

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

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

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

Table 10

Commercial Real Estate Loans

(Dollar amounts in thousands)

	As of    September 30, 2021		% of Total	As of    December 31, 2020		% of Total
Office, retail, and industrial:
Office	$	549,613	11.3	$	626,641	13.0
Retail	581,228		12.0	579,700		12.0
Industrial	634,751		13.1	655,427		13.6
Total office, retail, and industrial	1,765,592		36.4	1,861,768		38.6
Multi-family	1,082,941		22.3	872,813		18.1
Construction	595,204		12.3	612,611		12.7
Other commercial real estate:
Multi-use properties	425,348		8.8	324,291		6.7
Rental properties	231,573		4.8	295,232		6.1
Warehouses and storage	164,296		3.4	173,837		3.6
Hotels	153,668		3.2	156,971		3.3
Service stations and truck stops	100,017		2.0	103,077		2.1
Restaurants	86,219		1.8	104,508		2.2
Recreational	55,770		1.1	87,283		1.8
Other	192,064		3.9	236,777		4.8
Total other commercial real estate	1,408,955		29.0	1,481,976		30.6
Total commercial real estate	$	4,852,692	100.0	$	4,829,168	100.0

Commercial real estate loans represent 32.7% of total loans, and totaled $4.9 billion at September 30, 2021, increasing $23.5 million, or 0.5%, 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 September 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 September 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 September 30, 2021, these elevated risk segments totaled $461 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 30.4% of total loans, and totaled $4.5 billion at September 30, 2021, an increase of $303.1 million, or 7.2%, 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 $198 million and was 1.4% of our total loan portfolio, excluding PPP loans, as of September 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 September 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
	September 30, 2021			June 30,   2021			March 31,   2021			December 31, 2020			September 30, 2020
Change in ACL
Beginning balance	$	223,226		$	243,384		$	247,042		$	246,873		$	247,677
Allowance established for acquired PCD loans	—			—			—			1			(1,188)
Loan charge-offs:
Commercial, industrial, and agricultural	7,081			16,766			2,841			7,279			6,853
Office, retail, and industrial	673			3,898			4,477			1,706			1,344
Multi-family	1			4			—			19			—
Construction	1,153			218			—			140			4,889
Other commercial real estate	857			585			486			1,006			1,823
Consumer	1,992			2,156			3,513			2,977			2,629
Total loan charge-offs	11,757			23,627			11,317			13,127			17,538
Recoveries of loan charge-offs:
Commercial, industrial, and agricultural	2,116			2,033			738			1,964			1,118
Office, retail, and industrial	117			20			100			5			5
Multi-family	—			2			5			—			—
Construction	167			10			—			—			—
Other commercial real estate	28			126			115			90			70
Consumer	969			678			603			529			602
Total recoveries of loan charge-offs	3,397			2,869			1,561			2,588			1,795
Net loan charge-offs	8,360			20,758			9,756			10,539			15,743
Provision for loan losses	—			—			6,098			10,507			15,927
Increase in allowance for unfunded   commitments	—			600			—			200			200
Ending balance	$	214,866		$	223,226		$	243,384		$	247,042		$	246,873
Total net loan charge-offs, excluding   PCD loans	$	6,603		$	16,421		$	7,649		$	4,051		$	8,820
ACL
Allowance for loan losses	$	206,241		$	214,601		$	235,359		$	239,017		$	239,048
Allowance for unfunded commitments	8,625			8,625			8,025			8,025			7,825
Total ACL	$	214,866		$	223,226		$	243,384		$	247,042		$	246,873
ACL to loans	1.45		%	1.48		%	1.60		%	1.67		%	1.68		%
ACL to loans, excluding PPP loans(1)	1.49		%	1.56		%	1.73		%	1.77		%	1.83		%
ACL to non-accrual loans	243.94		%	179.32		%	153.67		%	173.33		%	171.95		%
Net loan charge-offs to average loans,   annualized	0.22		%	0.55		%	0.26		%	0.29		%	0.42		%
Net loan charge-offs to average loans, excluding   PCD and PPP loans, annualized(1)	0.18		%	0.47		%	0.22		%	0.12		%	0.26		%

(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.

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Activity in the Allowance for Credit Losses

The ACL was $214.9 million or 1.45% of total loans as of September 30, 2021, decreasing $32.2 million and $32.0 million compared to December 31, 2020 and September 30, 2020, respectively. Excluding the impact of PPP loans, ACL to total loans was 1.49% as of September 30, 2021, compared to 1.77% and 1.83% as of December 31, 2020 and September 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 0.22%, or $8.4 million, for the third quarter of 2021, compared to 0.29% and 0.42% for the fourth and third quarters of 2020, respectively. Excluding charge-offs on PCD loans, net loan charge-offs to average loans was 0.18% for the third quarter of 2021 compared to 0.12% and 0.26% for the fourth and third quarters of 2020, respectively, reflecting normal fluctuations that occur on a quarterly basis.

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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 September 30, 2021
Commercial and industrial	$	4,685,067	$	5,053	$	722	$	14,616	$	4,705,458
Agricultural	342,477		—		—		6,682		349,159
Commercial real estate:
Office, retail, and industrial	1,735,769		9,191		—		20,632		1,765,592
Multi-family	1,077,601		1,890		—		3,450		1,082,941
Construction	592,433		920		—		1,851		595,204
Other commercial real estate	1,384,746		6,117		32		18,060		1,408,955
Total commercial real estate	4,790,549		18,118		32		43,993		4,852,692
Total corporate loans, excluding   PPP loans	9,818,093		23,171		754		65,291		9,907,309
PPP loans	384,100		—		—		—		384,100
Total corporate loans	10,202,193		23,171		754		65,291		10,291,409
Home equity	579,474		1,571		75		10,006		591,126
1-4 family mortgages	3,316,371		3,575		—		12,786		3,332,732
Installment	570,600		2,401		464		—		573,465
Total consumer loans	4,466,445		7,547		539		22,792		4,497,323
Total loans	$	14,668,638	$	30,718	$	1,293	$	88,083	$	14,788,732
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
	September 30, 2021			June 30,   2021			March 31, 2021			December 31, 2020			September 30, 2020
Non-accrual loans, excluding PCD   loans(1)	$	64,166		$	101,381		$	128,650		$	109,957		$	103,582
Non-accrual PCD loans	23,917			23,101			29,734			32,568			39,990
Total non-accrual loans	88,083			124,482			158,384			142,525			143,572
90 days or more past due loans, still   accruing interest	1,293			878			5,354			4,395			3,781
Total non-performing loans	89,376			125,360			163,738			146,920			147,353
Accruing TDRs	539			782			798			813			841
Foreclosed assets(2)	26,375			26,732			13,228			16,671			15,299
Total non-performing assets	$	116,290		$	152,874		$	177,764		$	164,404		$	163,493
30-89 days past due loans	$	30,718		$	21,051		$	30,973		$	40,656		$	21,551
Non-accrual loans to total loans:
Non-accrual loans to total loans	0.60		%	0.83		%	1.04		%	0.97		%	0.98		%
Non-accrual loans to total loans, excluding   PPP loans(1)(3)	0.61		%	0.87		%	1.13		%	1.02		%	1.07		%
Non-accrual loans to total loans, excluding   PCD and PPP loans(1)(3)	0.45		%	0.72		%	0.93		%	0.80		%	0.78		%
Non-performing loans to total loans:
NPLs to total loans	0.60		%	0.83		%	1.08		%	1.00		%	1.01		%
NPLs to total loans, excluding PPP   loans(1)(3)	0.62		%	0.87		%	1.16		%	1.05		%	1.10		%
NPLs to total loans, excluding PCD and   PPP loans(1)(3)	0.46		%	0.72		%	0.97		%	0.83		%	0.81		%
Non-performing assets to total loans plus foreclosed assets:
NPAs to total loans plus foreclosed assets	0.78		%	1.01		%	1.17		%	1.11		%	1.11		%
NPAs to total loans plus foreclosed assets,   excluding PPP loans(1)(3)	0.81		%	1.06		%	1.26		%	1.18		%	1.21		%
NPAs to total loans plus foreclosed assets,   excluding PCD and PPP loans(1)(3)	0.65		%	0.92		%	1.07		%	0.96		%	0.93		%

(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 0.78% of total loans and foreclosed assets at September 30, 2021, compared to 1.11% at both December 31, 2020 and September 30, 2020. Excluding the impact of PCD and PPP loans, NPAs to total loans plus foreclosed assets was 0.65% at September 30, 2021 compared to 0.96% at December 31, 2020 and 0.93% at September 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 first nine months 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
	September 30, 2021			December 31, 2020			September 30, 2020
	Number of Loans	Amount		Number of Loans	Amount		Number of Loans	Amount
Commercial and industrial	3	$	6,255	6	$	8,859	7	$	12,982
Commercial real estate:
Office, retail, and industrial	—	—		1	2,340		1	2,340
Multi-family	1	151		1	160		1	160
Other commercial real estate	2	155		2	184		2	193
Total commercial real estate	3	306		4	2,684		4	2,693
Total corporate loans	6	6,561		10	11,543		11	15,675
Home equity	5	132		5	147		5	154
1-4 family mortgages	6	572		8	826		9	849
Installment	—	—		—	—		—	—
Total consumer loans	11	704		13	973		14	1,003
Total TDRs	17	$	7,265	23	$	12,516	25	$	16,678
Accruing TDRs	7	$	539	9	$	813	9	$	841
Non-accrual TDRs	10	6,726		14	11,703		16	15,837
Total TDRs	17	$	7,265	23	$	12,516	25	$	16,678
Year-to-date charge-offs on TDRs		$	1,026		$	7,247		$	8,455
Specific allowances related to TDRs		245			140			186

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 September 30, 2021, the Company has eligible modifications with outstanding balances totaling $40.6 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 September 30, 2021									As of December 31, 2020
	Special Mention(1)			Substandard(2)			Total(3)			Special Mention(1)			Substandard(2)			Total(3)
Commercial and industrial	$	135,444		$	145,762		$	281,206		$	225,943		$	152,158		$	378,101
Agricultural	21,183			5,860			27,043			21,034			12,676			33,710
Commercial real estate	173,591			199,570			373,161			162,106			192,385			354,491
Total performing loans   classified as substandard and   special mention(5)	$	330,218		$	351,192		$	681,410		$	409,083		$	357,219		$	766,302
PCD performing loans classified   as substandard and special   mention	$	17,403		$	34,034		$	51,437		$	40,165		$	38,020		$	78,185
Performing loans classified as   substandard and special mention   to corporate loans	3.21		%	3.41		%	6.62		%	3.88		%	3.38		%	7.26		%
Performing loans classified as   substandard and special mention   to corporate loans, excluding   PPP loans(4)(5)	3.33		%	3.54		%	6.88		%	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 $681 million at September 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
	September 30, 2021		December 31, 2020		September 30, 2020
Single-family homes	$	—	$	191	$	32
Land parcels:
Raw land	—		—		—
Commercial lots	3,563		4,906		3,736
Single-family lots	1,543		1,543		1,542
Total land parcels	5,106		6,449		5,278
Multi-family units	—		117		—
Commercial properties	—		1,496		1,242
Total OREO	5,106		8,253		6,552
Other foreclosed assets(1)	21,269		8,418		8,747
Total	$	26,375	$	16,671	$	15,299

(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 nine months ended September 30, 2021 and 2020 is presented in the following table.

Table 17

Foreclosed Assets Rollforward

(Dollar amounts in thousands)

	Quarters Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Beginning balance	$	26,732	$	19,024	$	16,671	$	20,458
Transfers from loans	—		—		14,759		121
Acquisitions	—		—		—		2,001
Acquisition accounting adjustment	—		177		—		(390)
Proceeds from sales	(565)		(3,809)		(4,039)		(4,862)
Gains (losses) on sales of foreclosed assets	208		(93)		474		49
Valuation adjustments	—		—		(1,490)		(2,078)
Ending balance	$	26,375	$	15,299	$	26,375	$	15,299

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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									September 30, 2021 % Change From
	September 30, 2021			December 31, 2020			September 30, 2020			December 31, 2020	September 30, 2020
Demand deposits	$	6,272,903		$	5,753,600		$	5,631,355		9.0	11.4
Savings deposits	2,785,816			2,436,930			2,342,355			14.3	18.9
NOW accounts	3,213,637			2,774,989			2,744,034			15.8	17.1
Money market accounts	3,211,355			2,923,881			2,781,666			9.8	15.4
Core deposits	15,483,711			13,889,400			13,499,410			11.5	14.7
Time deposits	1,800,493			2,035,847			2,254,675			(11.6)	(20.1)
Brokered deposits	—			11,413			47,344			N/M	N/M
Total time deposits	1,800,493			2,047,260			2,302,019			(12.1)	(21.8)
Total deposits	17,284,204			15,936,660			15,801,429			8.5	9.4
Securities sold under agreements to   repurchase	131,440			137,421			127,340			(4.4)	3.2
Federal funds purchased	—			—			194,565			N/M	N/M
FHLB advances	1,150,528			1,524,311			2,115,017			(24.5)	(45.6)
Total borrowed funds	1,281,968			1,661,732			2,436,922			(22.9)	(47.4)
Senior and subordinated debt	235,284			234,669			234,464			0.3	0.3
Total funding sources	$	18,801,456		$	17,833,061		$	18,472,815		5.4	1.8
Average interest rate paid on   borrowed funds	0.97		%	1.00		%	0.98		%
Weighted-average maturity of FHLB   advances	87.2 months			78.9 months			62.9 months
Weighted-average interest rate of   FHLB advances	1.06		%	0.92		%	0.77		%

N/M – Not meaningful

Total average funding sources for the third quarter of 2021 increased $968.4 million, or 5.4%, from the fourth quarter of 2020 and increased $328.6 million, or 1.8%, compared to the third 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 September 30, 2021, the Company had $8.8 billion of additional funding sources to provide ample capacity to support its clients, colleagues, and communities, with $5.1 billion of the additional funding comprised of $2.6 billion of unencumbered securities and cash, $857.8 million of Federal Reserve availability, and $1.7 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 September 30, 2021 no amount was outstanding under the PPPLF.

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Table 19

Borrowed Funds

(Dollar amounts in thousands)

	September 30, 2021			September 30, 2020
	Amount		Weighted- Average Rate (%)	Amount		Weighted- Average Rate (%)
At period-end:
Securities sold under agreements to repurchase	$	124,044	0.04	$	132,652	0.11
Federal funds purchased	—		—	—		—
FHLB advances	1,150,528		1.06	1,824,528		0.77
Total borrowed funds	$	1,274,572	0.96	$	1,957,180	0.73
Average for the year-to-date period:
Securities sold under agreements to repurchase	$	136,792	0.05	$	120,641	0.10
Federal funds purchased	—		—	173,717		0.75
FHLB advances	1,162,857		1.07	2,009,769		0.93
Total borrowed funds	$	1,299,649	0.96	$	2,304,127	0.87
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 nine months of 2021, decreasing by $1.0 billion 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 nine months of 2020 was impacted by the hedging of $225.0 million of borrowed funds as of September 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 1.47% as of September 30, 2020. For a detailed discussion of interest rate swaps, see Note 12 of "Notes to the Condensed Consolidated Financial Statements" in Part I, Item 1 of this Form 10-Q.

The Company had a loan agreement with U.S. Bank National Association that provided for a $50.0 million short-term, unsecured revolving credit facility. This facility matured on September 26, 2021.

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 September 30, 2021 and December 31, 2020.

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Table 20

Capital Measurements

(Dollar amounts in thousands)

					As of September 30, 2021
					Minimum Requirement Plus Capital Conservation Buffer				Well-Capitalized(1)
	As of				Minimum		Excess Over Minimums		Minimum		Excess Over Minimums
	September 30,   2021		December 31, 2020
Bank regulatory capital ratios
Total capital to risk-weighted assets	11.84	%	11.24	%	10.50	%	$	206,487	10.00	%	$	283,790
Tier 1 capital to risk-weighted assets	10.90	%	10.20	%	8.50	%	$	371,286	8.00	%	$	448,589
CET1 to risk-weighted assets	10.90	%	10.20	%	7.00	%	$	603,194	6.50	%	$	680,497
Tier 1 capital to average assets	8.07	%	7.86	%	4.00	%	$	850,358	5.00	%	$	641,589
Company regulatory capital ratios
Total capital to risk-weighted assets	14.26	%	14.14	%	10.50	%	$	585,467	10.00	%	$	663,328
Tier 1 capital to risk-weighted assets	11.99	%	11.55	%	8.50	%	$	543,203	6.00	%	$	932,509
CET1 to risk-weighted assets	10.51	%	10.06	%	7.00	%	$	546,286	N/A		N/A
Tier 1 capital to average assets	8.89	%	8.91	%	4.00	%	$	1,027,221	N/A		N/A
Company tangible common equity ratios(2)(3)
Tangible common equity to tangible assets	7.53	%	7.67	%	N/A		N/A		N/A		N/A
Tangible common equity to tangible assets,   excluding PPP loans	7.67	%	7.98	%	N/A		N/A		N/A		N/A
Tangible common equity, excluding   accumulated other comprehensive income (loss),   to tangible assets	7.65	%	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	7.79	%	7.85	%	N/A		N/A		N/A		N/A
Tangible common equity to risk-weighted   assets	10.08	%	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 30 basis point impact of stock repurchases completed in the first nine months of 2021. Total capital to risk-weighted assets was impacted by the beginning of the five-year phase-out of Tier 2 treatment of the Company's subordinated debt in the third quarter 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 September 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 September 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 accordance with GAAP.

65

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 nine months ended September 30, 2021. The Company did not repurchase any shares of its common stock during the third quarter of 2021.

Dividends

The Board approved a quarterly cash dividend of $0.14 per common share during the third quarter of 2021, which is consistent with the second and first quarters of 2021 and the fourth quarter of 2020. This dividend represents the 155th 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 nine months of 2021), acquisition and integration related expenses associated with completed and pending transactions (all periods), and net securities gains (third quarter and first nine months 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.

66

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.

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Non-GAAP Reconciliations

(Amounts in thousands, except per share data)

	Quarters Ended   September 30,						Nine Months Ended   September 30,
	2021			2020			2021			2020
EPS
Net income	$	54,863		$	27,623		$	151,007		$	66,293
Preferred dividends	(4,033)			(4,033)			(12,101)			(5,070)
Net income applicable to non-vested restricted shares	(517)			(236)			(1,524)			(615)
Net income applicable to common shares	50,313			23,354			137,382			60,608
Adjustments to net income:
Acquisition and integration related expenses	2,916			881			10,934			11,602
Tax effect of acquisition and integration related expenses	(729)			(220)			(2,734)			(2,900)
Optimization costs	—			18,376			1,556			18,376
Tax effect of optimization costs	—			(4,594)			(389)			(4,594)
Swap termination costs	—			14,285			—			14,285
Tax effect of swap termination costs	—			(3,571)			—			(3,571)
Net securities gains	—			(14,328)			—			(13,323)
Tax effect of net securities gains	—			3,582			—			3,331
Total adjustments to net income, net of tax	2,187			14,411			9,367			23,206
Net income applicable to common shares, adjusted	$	52,500		$	37,765		$	146,749		$	83,814
Weighted-average common shares outstanding:
Weighted-average common shares outstanding (basic)	112,898			113,160			112,953			112,079
Dilutive effect of common stock equivalents	878			276			789			322
Weighted-average diluted common shares outstanding	113,776			113,436			113,742			112,401
Basic EPS	$	0.45		$	0.21		$	1.22		$	0.54
Diluted EPS	$	0.44		$	0.21		$	1.21		$	0.54
Diluted EPS, adjusted	$	0.46		$	0.33		$	1.29		$	0.75
Return on Average Assets
Net income	$	54,863		$	27,623		$	151,007		$	66,293
Total adjustments to net income, net of tax(1)	2,187			14,411			9,367			23,206
Net income, adjusted	$	57,050		$	42,034		$	160,374		$	89,499
Average assets	$	21,899,560		$	21,526,695		$	21,454,195		$	20,271,140
Return on average assets(2)(3)	0.99		%	0.51		%	0.94		%	0.44		%
Return on average assets, adjusted(1)(2)(3)	1.03		%	0.78		%	1.00		%	0.59		%
Note: Non-GAAP Reconciliations footnotes are located at the end of this section.

68

	Quarters Ended   September 30,						Nine Months Ended   September 30,
	2021			2020			2021			2020
Return on Average Common and Tangible Common Equity
Net income applicable to common shares	$	50,313		23,354			$	137,382		$	60,608
Intangibles amortization	2,793			2,810			8,398			8,400
Tax effect of intangibles amortization	(698)			(703)			(2,100)			(2,100)
Net income applicable to common shares, excluding   intangibles amortization	52,408			25,461			143,680			66,908
Total adjustments to net income, net of tax(1)	2,187			14,411			9,367			23,206
Net income applicable to common shares, excluding   intangibles amortization, adjusted(1)	$	54,595		$	39,872		$	153,047		$	90,114
Average stockholders' common equity	$	2,503,028		$	2,444,594		$	2,470,955		$	2,434,358
Less: average intangible assets	(924,743)			(938,712)			(927,838)			(920,180)
Average tangible common equity	$	1,578,285		$	1,505,882		$	1,543,117		$	1,514,178
Return on average common equity(2)(3)	7.97		%	3.80		%	7.43		%	3.33		%
Return on average common equity, adjusted(1)(2)(3)	8.32		%	6.15		%	8.06		%	4.60		%
Return on average tangible common equity(2)(3)	13.17		%	6.73		%	12.45		%	5.90		%
Return on average tangible common equity, adjusted(1)(2)(3)	13.72		%	10.53		%	13.26		%	7.95		%
Note: Non-GAAP Reconciliations footnotes are located at the end of this section.

	Quarters Ended   September 30,						Nine Months Ended   September 30,
	2021			2020			2021			2020
Efficiency Ratio Calculation
Noninterest expense	$	116,054		$	131,074		$	355,898		$	368,735
Less:
Acquisition and integration related expenses	(2,916)			(881)			(10,934)			(11,602)
Net OREO expense	4			(544)			(745)			(1,090)
Optimization costs	—			(18,376)			(1,556)			(18,376)
Total	$	113,142		$	111,273		$	342,663		$	337,667
Tax-equivalent net interest income(2)	$	146,190		$	143,821		$	433,529		$	434,938
Noninterest income	45,180			40,585			137,253			112,938
Less:
Swap termination costs	—			14,285			—			14,285
Net securities gains	—			(14,328)			—			(13,323)
Total	$	191,370		$	184,363		$	570,782		$	548,838
Efficiency ratio	59.12		%	60.36		%	60.03		%	61.52		%
Note: Non-GAAP Reconciliations footnotes are located at the end of this section.

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	As of
	September 30, 2021			December 31, 2020
Tangible Common Equity
Stockholders' equity	$	2,492,723		$	2,459,506
Less: goodwill and other intangible assets	(923,383)			(932,764)
Tangible common equity	1,569,340			1,526,742
Less: AOCI	25,381			(26,379)
Tangible common equity, excluding AOCI	$	1,594,721		$	1,500,363
Total assets	$	21,778,180		$	20,838,678
Less: goodwill and other intangible assets	(923,383)			(932,764)
Tangible assets	20,854,797			19,905,914
Less: PPP loans	(384,100)			(785,563)
Tangible assets	$	20,470,697		$	19,120,351
Risk-weighted assets	$	15,572,239		$	15,380,240
Tangible common equity to tangible assets	7.53		%	7.67		%
Tangible common equity to tangible assets, excluding PPP loans	7.67		%	7.98		%
Tangible common equity, excluding AOCI, to tangible assets	7.65		%	7.54		%
Tangible common equity, excluding AOCI, to tangible assets, excluding PPP loans	7.79		%	7.85		%
Tangible common equity to risk-weighted assets	10.08		%	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 September 30, 2021, compared to 50% and 50% at December 31, 2020. See Note 12 of "Notes to the Condensed Consolidated Financial Statements" in Part I, Item 1 of this Form 10-Q for additional detail regarding interest rate swaps.

As of September 30, 2021, investments, consisting of securities and interest-bearing deposits in other banks, are more heavily weighted toward fixed rate securities at 68% of the total compared to 32% 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 $1.5 billion, or 21%, of the floating rate loan portfolio as of September 30, 2021 and 15% of December 31, 2020. On the liability side of the balance sheet, 90% and 87% of deposits as of September 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 September 30, 2021
Dollar change	$	134,771		$	88,745		$	42,063		$	(18,473)
Percent change	24.0		%	15.8		%	7.5		%	(3.3)		%
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 September 30, 2021 would increase net interest income by $42.1 million, or 7.5%, 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 September 30, 2021 was higher compared to December 31, 2020 due to increased balance sheet liquidity and reduced funding needs, partially offset by an increase in fixed rate loans and floating rate loans with active interest rate floors.

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 September 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 expects 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 on the combined company for an undetermined period after completion of the merger.

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.

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 Board of Governors of the Federal Reserve System (the "Federal Reserve Board"), the Office of the Comptroller of the Currency (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 regulators

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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, 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.

Two lawsuits and four demand letters relating to the disclosures contained in the joint proxy statement/prospectus distributed to First Midwest stockholders in connection with the merger have been filed or delivered by alleged stockholders of First Midwest. Among other remedies, these lawsuits and demand letters, and additional litigation or demand letters related to the merger in the future, may seek information, 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 demand letters and the defense or settlement of claims contained in any such lawsuits or arising out of any demand letters 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 held on September 15, 2021, which approvals were obtained; (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 OCC, which has been obtained, and the Federal Reserve Board; 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 third 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 nine months of 2021 and did not repurchase any shares of its common stock during the third 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
July 1 - July 31, 2021	8,516	$	18.01	—	$	173,529,294
August 1 - August 31, 2021	1,465	18.13		—	173,529,294
September 1 - September 30, 2021	773	18.30		—	173,529,294
Total	10,754	$	18.05	—

(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
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.

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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: October 27, 2021

* Duly authorized to sign on behalf of the registrant.

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