Company Quick10K Filing
Quick10K
First Midwest Bancorp
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$20.77 107 $2,220
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-05-15 Regulation FD, Exhibits
8-K 2019-05-15 Shareholder Vote
8-K 2019-05-13 Other Events, Exhibits
8-K 2019-05-01 Earnings, Regulation FD, Exhibits
8-K 2019-04-23 Earnings, Exhibits
8-K 2019-03-19 Other Events, Exhibits
8-K 2019-03-14 Other Events, Exhibits
8-K 2019-02-19 Officers
8-K 2019-02-13 Earnings, Regulation FD, Exhibits
8-K 2019-01-22 Earnings, Exhibits
8-K 2019-01-18 Officers
8-K 2019-01-18 Officers
8-K 2019-01-16 Other Events, Exhibits
8-K 2018-12-06 Other Events, Exhibits
8-K 2018-11-08 Other Events, Exhibits
8-K 2018-11-01 Earnings, Regulation FD, Exhibits
8-K 2018-10-23 Earnings, Exhibits
8-K 2018-10-15 Other Events, Exhibits
8-K 2018-09-26 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-08-21 Regulation FD, Exhibits
8-K 2018-08-16 Other Events, Exhibits
8-K 2018-07-24 Earnings, Exhibits
8-K 2018-06-18 Officers
8-K 2018-06-06 Other Events, Exhibits
8-K 2018-05-16 Exit Costs, Regulation FD, Exhibits
8-K 2018-04-24 Earnings, Exhibits
8-K 2018-02-21 Officers
8-K 2018-02-07 Earnings, Regulation FD, Exhibits
8-K 2018-01-29 Earnings, Exhibits
CPRT Copart 15,140
HAS Hasbro 12,640
MMS Maximus 4,610
AAT American Assets Trust 2,180
PTLA Portola Pharmaceuticals 2,150
EVFM Evofem Biosciences 203
GSVC GSV Capital 141
PPCB Propanc Biopharma 0
FHLB Federal Home Loan Bank of Atlanta 0
PTPRO All Marketing Solutions 0
FMBI 2019-03-31
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of Financial
Item 3. Quantitative and Qualitative
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-10.1 fmbi03312019ex101.htm
EX-10.2 fmbi03312019ex102.htm
EX-10.3 fmbi03312019ex103.htm
EX-31.1 fmbi03312019ex311.htm
EX-31.2 fmbi03312019ex312.htm
EX-32.1 fmbi03312019ex321.htm
EX-32.2 fmbi03312019ex322.htm

First Midwest Bancorp Earnings 2019-03-31

FMBI 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 fmbi0331201910-q.htm 10-Q Document
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
 
FORM 10-Q
(Mark One)
[X]
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2019
 
 
 
 
 
or
 
 
 
 
[ ]
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from _________ to __________.
 

Commission File Number 0-10967
______________________
 
a3282014fmbilogoa03a18.jpg
(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
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ].
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ].
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [X]
 
Accelerated filer [ ]
Non-accelerated filer [ ]
 
Smaller reporting company [ ]
(Do not check if a smaller reporting company)
 
Emerging growth company [ ]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ] 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X].
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common stock, $0.01 Par Value
 
FMBI
 
The NASDAQ Stock Market
As of May 6, 2019, there were 106,903,756 shares of common stock, $.01 par value, outstanding.
 



FIRST MIDWEST BANCORP, INC.
FORM 10-Q
TABLE OF CONTENTS
 
 
 
Page
Part I.
 
FINANCIAL INFORMATION
 
 
ITEM 1.
 
Financial Statements (Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ITEM 2.
 
 
ITEM 3.
 
 
ITEM 4.
 
 
Part II.
 
 
 
ITEM 1.
 
 
ITEM 1A.
 
 
ITEM 2.
 
 
ITEM 6.
 



PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (Unaudited)
FIRST MIDWEST BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Amounts in thousands, except per share data)
 
 
 
March 31,
2019
 
December 31,
2018
Assets
 
(Unaudited)
 
 
Cash and due from banks
 
$
186,230

 
$
211,189

Interest-bearing deposits in other banks
 
76,529

 
78,069

Equity securities, at fair value
 
33,304

 
30,806

Securities available-for-sale, at fair value
 
2,350,195

 
2,272,009

Securities held-to-maturity, at amortized cost
 
12,842

 
10,176

Federal Home Loan Bank ("FHLB") and Federal Reserve Bank ("FRB") stock, at cost
 
85,790

 
80,302

Loans
 
11,569,003

 
11,446,783

Allowance for loan losses
 
(103,579
)
 
(102,219
)
Net loans
 
11,465,424

 
11,344,564

Other real estate owned ("OREO")
 
10,818

 
12,821

Premises, furniture, and equipment, net
 
131,014

 
132,502

Investment in bank-owned life insurance ("BOLI")
 
295,899

 
296,733

Goodwill and other intangible assets
 
808,852

 
790,744

Accrued interest receivable and other assets
 
360,872

 
245,734

Total assets
 
$
15,817,769

 
$
15,505,649

Liabilities
 
 
 
 
Noninterest-bearing deposits
 
$
3,588,943

 
$
3,642,989

Interest-bearing deposits
 
8,572,039

 
8,441,123

Total deposits
 
12,160,982

 
12,084,112

Borrowed funds
 
973,852

 
906,079

Senior and subordinated debt
 
203,984

 
203,808

Accrued interest payable and other liabilities
 
319,480

 
256,652

Total liabilities
 
13,658,298

 
13,450,651

Stockholders' Equity
 
 
 
 
Common stock
 
1,157

 
1,157

Additional paid-in capital
 
1,103,991

 
1,114,580

Retained earnings
 
1,273,245

 
1,192,767

Accumulated other comprehensive loss, net of tax
 
(32,159
)
 
(52,512
)
Treasury stock, at cost
 
(186,763
)
 
(200,994
)
Total stockholders' equity
 
2,159,471

 
2,054,998

Total liabilities and stockholders' equity
 
$
15,817,769

 
$
15,505,649

 
 
 
 
 
 
March 31, 2019
 
December 31, 2018
 
(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

 
115,675

 

 
115,672

Shares outstanding

 
106,900

 

 
106,375

Treasury shares

 
8,775

 

 
9,297

 
See accompanying unaudited notes to the condensed consolidated financial statements.

3




FIRST MIDWEST BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share data)
(Unaudited)
 
 
Quarters Ended 
 March 31,
 
 
2019
 
2018
Interest Income
 
 
 
 
Loans
 
$
144,804

 
$
118,686

Investment securities
 
16,006

 
11,756

Other short-term investments
 
1,680

 
903

Total interest income
 
162,490

 
131,345

Interest Expense
 
 
 
 
Deposits
 
16,602

 
6,179

Borrowed funds
 
3,551

 
3,479

Senior and subordinated debt
 
3,313

 
3,124

Total interest expense
 
23,466

 
12,782

Net interest income
 
139,024

 
118,563

Provision for loan losses
 
10,444

 
15,181

Net interest income after provision for loan losses
 
128,580

 
103,382

Noninterest Income
 
 
 
 
Service charges on deposit accounts
 
11,540

 
11,652

Wealth management fees
 
11,600

 
10,958

Card-based fees
 
4,378

 
3,933

Capital market products income
 
1,279

 
1,558

Mortgage banking income
 
1,004

 
2,397

Other service charges, commissions, and fees
 
2,611

 
2,548

Other income
 
2,494

 
2,471

Total noninterest income
 
34,906

 
35,517

Noninterest Expense
 
 
 
 
Salaries and employee benefits
 
57,373

 
56,787

Net occupancy and equipment expense
 
14,770

 
13,773

Professional services
 
7,788

 
7,580

Technology and related costs
 
4,596

 
4,771

Net OREO expense
 
681

 
1,068

Other expenses
 
12,953

 
11,603

Delivering Excellence implementation costs
 
258

 

Acquisition and integration related expenses
 
3,691

 

Total noninterest expense
 
102,110

 
95,582

Income before income tax expense
 
61,376

 
43,317

Income tax expense
 
15,318

 
9,807

Net income
 
$
46,058

 
$
33,510

Per Common Share Data
 
 
 
 
Basic earnings per common share
 
$
0.43

 
$
0.33

Diluted earnings per common share
 
$
0.43

 
$
0.33

Dividends declared per common share
 
$
0.12

 
$
0.11

Weighted-average common shares outstanding
 
105,770

 
101,922

Weighted-average diluted common shares outstanding
 
105,770

 
101,938

 
See accompanying unaudited notes to the condensed consolidated financial statements.

4




FIRST MIDWEST BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollar amounts in thousands)
(Unaudited)
 
 
Quarters Ended 
 March 31,
 
 
2019
 
2018
Net income
 
$
46,058

 
$
33,510

Securities Available-for-Sale
 
 
 
 
Unrealized holding gains (losses):
 
 
 
 
Before tax
 
26,752

 
(25,153
)
Tax effect
 
(7,451
)
 
6,972

Net of tax
 
19,301

 
(18,181
)
Derivative Instruments
 
 
 
 
Unrealized holding gains (losses):
 
 
 
 
Before tax
 
1,458

 
522

Tax effect
 
(406
)
 
(147
)
Net of tax
 
1,052

 
375

Total other comprehensive income (loss)
 
20,353

 
(17,806
)
Total comprehensive income
 
$
66,411

 
$
15,704



 
 
Accumulated
Unrealized
Loss on
Securities
Available-
for-Sale
 
Accumulated Unrealized
Loss on Derivative Instruments
 
Unrecognized
Net Pension
Costs
 
Total
Accumulated
Other
Comprehensive
Loss
Balance at December 31, 2017
 
$
(13,976
)
 
$
(3,763
)
 
$
(15,297
)
 
$
(33,036
)
Adjustment to apply recent accounting pronouncements(1)
 
(2,864
)
 
(784
)
 
(3,041
)
 
(6,689
)
Other comprehensive loss
 
(18,181
)
 
375

 

 
(17,806
)
Balance at March 31, 2018
 
$
(35,021
)
 
$
(4,172
)
 
$
(18,338
)
 
$
(57,531
)
Balance at December 31, 2018
 
$
(28,792
)
 
$
(2,550
)
 
$
(21,170
)
 
$
(52,512
)
Other comprehensive income
 
19,301

 
1,052

 

 
20,353

Balance at March 31, 2019
 
$
(9,491
)
 
$
(1,498
)
 
$
(21,170
)
 
$
(32,159
)
(1) 
As a result of accounting guidance adopted in the first quarter of 2018, certain reclassifications were made from accumulated other comprehensive loss to retained earnings as of January 1, 2018.
 
See accompanying unaudited notes to the condensed consolidated financial statements.


5




FIRST MIDWEST BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Amounts in thousands, except per share data)
(Unaudited)
 
 
Common
Shares
Outstanding
 
Common
Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Treasury
Stock
 
Total
Balance at December 31, 2017
 
102,717

 
$
1,123

 
$
1,031,870

 
$
1,074,990

 
$
(33,036
)
 
$
(210,073
)
 
$
1,864,874

Adjustment to apply recent accounting
  pronouncements(1)
 

 

 

 
6,689

 
(6,689
)
 

 

Net income
 

 

 

 
33,510

 

 

 
33,510

Other comprehensive loss
 

 

 

 

 
(17,806
)
 

 
(17,806
)
Common dividends declared
  ($0.11 per common share)
 

 

 

 
(11,349
)
 

 

 
(11,349
)
Common stock issued
 
1

 

 
94

 

 

 
667

 
761

Restricted stock activity
 
377

 

 
(13,430
)
 

 

 
9,432

 
(3,998
)
Treasury stock issued to benefit plans
 
(3
)
 

 
22

 

 

 
(94
)
 
(72
)
Share-based compensation expense
 

 

 
3,367

 

 

 

 
3,367

Balance at March 31, 2018
 
103,092

 
$
1,123

 
$
1,021,923

 
$
1,103,840

 
$
(57,531
)
 
$
(200,068
)
 
$
1,869,287

Balance at December 31, 2018
 
106,375

 
$
1,157

 
$
1,114,580

 
$
1,192,767

 
$
(52,512
)
 
$
(200,994
)
 
$
2,054,998

Adjustment to apply recent accounting
  pronouncements(2)
 

 

 

 
47,257

 

 

 
47,257

Net income
 

 

 

 
46,058

 

 

 
46,058

Other comprehensive income
 

 

 

 

 
20,353

 

 
20,353

Common dividends declared
  ($0.12 per common share)
 

 

 

 
(12,837
)
 

 

 
(12,837
)
Acquisition, net of issuance costs
 
150

 

 
(814
)
 

 

 
4,098

 
3,284

Common stock issued
 
27

 

 
(137
)
 

 

 
674

 
537

Restricted stock activity
 
352

 

 
(13,313
)
 

 

 
9,538

 
(3,775
)
Treasury stock issued to benefit plans
 
(4
)
 

 
(4
)
 

 

 
(79
)
 
(83
)
Share-based compensation expense
 

 

 
3,679

 

 

 

 
3,679

Balance at March 31, 2019
 
106,900

 
$
1,157

 
$
1,103,991

 
$
1,273,245

 
$
(32,159
)
 
$
(186,763
)
 
$
2,159,471

(1) 
As a result of accounting guidance adopted in the first quarter of 2018, certain reclassifications were made from accumulated other comprehensive loss to retained earnings as of January 1, 2018.
(2) 
As a result of accounting guidance adopted in the first quarter of 2019, the remaining deferred gain on a sale-leaseback transaction was recognized as a cumulative-effect adjustment to retained earnings as of January 1, 2019. For further discussion of this guidance, see Note 2, "Recent Accounting Pronouncements."
 
See accompanying unaudited notes to the condensed consolidated financial statements.

6




FIRST MIDWEST BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
(Unaudited)
 
 
Three Months Ended 
 March 31,
 
 
2019
 
2018
Operating Activities
 
 
 
 
Net income
 
$
46,058

 
$
33,510

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Provision for loan losses
 
10,444

 
15,181

Depreciation of premises, furniture, and equipment
 
4,050

 
3,606

Net amortization of premium on securities
 
2,672

 
3,848

Gains on sales of 1-4 family mortgages and corporate loans held-for-sale
 
(1,410
)
 
(1,625
)
Net (gains) losses on sales and valuation adjustments of OREO
 
(792
)
 
440

Amortization of the FDIC indemnification asset
 
302

 
302

Net losses on sales and valuation adjustments of premises, furniture, and equipment
 
391

 
60

BOLI income
 
(1,826
)
 
(1,373
)
Share-based compensation expense
 
3,679

 
3,367

Tax benefit related to share-based compensation
 
55

 
51

Amortization of other intangible assets
 
2,363

 
1,802

Originations of mortgage loans held-for-sale
 
(62,895
)
 
(49,535
)
Proceeds from sales of mortgage loans held-for-sale
 
58,783

 
65,185

Net increase in equity securities
 
(2,498
)
 
(658
)
Net decrease (increase) in accrued interest receivable and other assets
 
27,948

 
(7,309
)
Net decrease in accrued interest payables and other liabilities
 
(37,870
)
 
(31,120
)
Net cash provided by operating activities
 
49,454

 
35,732

Investing Activities
 
 
 
 
Proceeds from maturities, repayments, and calls of securities available-for-sale
 
77,601

 
70,236

Purchases of securities available-for-sale
 
(131,707
)
 
(263,386
)
Proceeds from maturities, repayments, and calls of securities held-to-maturity
 
162

 
360

Purchases of securities held-to-maturity
 
(2,828
)
 

Net purchases of FHLB stock
 
(5,488
)
 
(10,800
)
Net increase in loans
 
(131,221
)
 
(255,057
)
Premiums paid on BOLI, net of proceeds from claims
 
2,660

 
(12
)
Proceeds from sales of OREO
 
2,795

 
3,876

Proceeds from sales of premises, furniture, and equipment
 
557

 
146

Purchases of premises, furniture, and equipment
 
(5,081
)
 
(6,844
)
Net cash paid for acquisition
 
(11,489
)
 

Net cash used in investing activities
 
(204,039
)
 
(461,481
)
Financing Activities
 
 
 
 
Net increase in deposit accounts
 
76,870

 
92,697

Net increase in borrowed funds
 
67,773

 
235,804

Cash dividends paid
 
(12,782
)
 
(10,288
)
Restricted stock activity
 
(3,775
)
 
(3,998
)
Net cash provided by financing activities
 
128,086

 
314,215

Net decrease in cash and cash equivalents
 
(26,499
)
 
(111,534
)
Cash and cash equivalents at beginning of period
 
289,258

 
346,570

Cash and cash equivalents at end of period
 
$
262,759

 
$
235,036


7




FIRST MIDWEST BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS – (Continued)
(Dollar amounts in thousands)
(Unaudited)
 
 
Three Months Ended 
 March 31,
 
 
2019
 
2018
Supplemental Disclosures of Cash Flow Information:
 
 
 
 
Income taxes paid
 
$
321

 
$
116

Interest paid to depositors and creditors
 
23,707

 
13,379

Dividends declared, but unpaid
 
12,728

 
11,246

Stock issued for acquisitions, net of issuance costs
 
3,284

 

Non-cash transfers of loans to OREO
 

 
937

Non-cash transfers of loans held-for-investment to loans held-for-sale
 
2,630

 
905

Non-cash transfer of trading securities and securities available-for-sale to equity securities
 

 
27,855

Non-cash recognition of right-of-use asset
 
143,561

 

Non-cash recognition of lease liability
 
143,561

 

 
See accompanying unaudited notes to the condensed consolidated financial statements.

8




NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation – The accompanying unaudited condensed consolidated interim financial statements ("consolidated financial statements") of First Midwest Bancorp, Inc. (the "Company"), a Delaware corporation, were prepared in accordance with the rules and regulations of the Securities and Exchange Commission ("SEC") for quarterly reports on Form 10-Q and reflect all adjustments that management deems necessary for the fair presentation of the financial position and results of operations for the periods presented. The results of operations for the quarter ended March 31, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.
The accounting and reporting policies of the Company and its subsidiaries conform to U.S. generally accepted accounting principles ("GAAP") and general practices within the banking industry. The accompanying consolidated financial statements do not include certain information and note disclosures required by GAAP for complete annual financial statements. Therefore, these financial statements should be read in conjunction with the Company's 2018 Annual Report on Form 10-K ("2018 10-K"). The Company uses the accrual basis of accounting for financial reporting purposes. Certain reclassifications were made to prior year amounts to conform to the current year presentation.
Use of Estimates – The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Although these estimates and assumptions are based on the best available information, actual results could differ from those estimates.
Principles of Consolidation – The accompanying consolidated financial statements include the financial position and results of operations of the Company and its subsidiaries after elimination of all significant intercompany accounts and transactions. Assets held in a fiduciary or agency capacity are not assets of the Company or its subsidiaries and are not included in the consolidated financial statements.
The accounting policies related to business combinations, loans, the allowance for credit losses, lease obligations, and derivative financial instruments are presented below. For a summary of all other significant accounting policies, see Note 1, "Summary of Significant Accounting Policies," in the Company's 2018 10-K.
Business Combinations – Business combinations are accounted for under the acquisition method of accounting. Assets acquired and liabilities assumed are recorded at their estimated fair values as of the date of acquisition, with any excess of the purchase price of the acquisition over the fair value of the identifiable net tangible and intangible assets acquired recorded as goodwill. Alternatively, a gain is recorded if the fair value of assets purchased exceeds the fair value of liabilities assumed and consideration paid. The results of operations of the acquired business are included in the Condensed Consolidated Statements of Income from the effective date of the acquisition.
Loans – Loans held-for-investment are loans that the Company intends to hold until they are paid in full and are carried at the principal amount outstanding, including certain net deferred loan origination fees. Loan origination fees, commitment fees, and certain direct loan origination costs are deferred, and the net amount is amortized as a yield adjustment over the contractual life of the related loans or commitments and included in interest income. Fees related to letters of credit are amortized into fee income over the contractual life of the commitment. Other credit-related fees are recognized as fee income when earned. The Company's net investment in direct financing leases is included in loans and consists of future minimum lease payments and estimated residual values, net of unearned income. Interest income on loans is accrued based on principal amounts outstanding. Loans held-for-sale are carried at the lower of aggregate cost or fair value and included in other assets in the Consolidated Statements of Financial Condition.
Acquired and Covered Loans – Covered loans consists of loans acquired by the Company in Federal Deposit Insurance Corporation ("FDIC")-assisted transactions, which are covered by loss share agreements with the FDIC (the "FDIC Agreements"), under which the FDIC reimburses the Company for the majority of the losses and eligible expenses related to these assets during the coverage period. Acquired loans consist of all other loans that were acquired in business combinations that are not covered by the FDIC Agreements. Certain loans that were previously classified as covered loans are no longer covered under the FDIC Agreements, and are included in acquired loans. Covered loans and acquired loans are included within loans held-for-investment.
Acquired and covered loans are separated into (i) non-purchased credit impaired ("non-PCI") and (ii) purchased credit impaired ("PCI") loans. Non-PCI loans include loans that did not have evidence of credit deterioration since origination at the acquisition date. PCI loans include loans that had evidence of credit deterioration since origination and for which it was probable at acquisition that the Company would not collect all contractually required principal and interest payments. Evidence of credit deterioration

9




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

10




The value of collateral-dependent loans is based on the fair value of the underlying collateral, less costs to sell. The value of other loans is measured using the present value of expected future cash flows discounted at the loan's initial effective interest rate.
Allowance for Credit Losses – The allowance for credit losses is comprised of the allowance for loan losses and the reserve for unfunded commitments, and is maintained by management at a level believed adequate to absorb estimated losses inherent in the existing loan portfolio. Determination of the allowance for credit losses is subjective since it requires significant estimates and management judgment, including the amounts and timing of expected future cash flows on impaired loans, estimated losses on pools of homogeneous loans, consideration of current economic trends, and other factors.
Loans deemed to be uncollectible are charged-off against the allowance for loan losses, while recoveries of amounts previously charged-off are credited to the allowance for loan losses. Additions to the allowance for loan losses are charged to expense through the provision for loan losses. The amount of provision depends on a number of factors, including net charge-off levels, loan growth, changes in the composition of the loan portfolio, and the Company's assessment of the allowance for loan losses based on the methodology discussed below.
Allowance for Loan Losses The allowance for loan losses consists of (i) specific reserves for individual loans where the recorded investment exceeds the value, (ii) an allowance based on a loss migration analysis that uses historical credit loss experience for each loan category, and (iii) an allowance based on other internal and external qualitative factors.
The specific reserves component of the allowance for loan losses is based on a periodic analysis of impaired loans exceeding a fixed dollar amount. If the value of an impaired loan is less than the recorded book value, the Company either establishes a valuation allowance (i.e., a specific reserve) equal to the excess of the book value over the collateral value of the loan as a component of the allowance for loan losses or charges off the amount if it is a confirmed loss.
The general reserve component is based on a loss migration analysis, which examines actual loss experience by loan category for a rolling 8-quarter period and the related internal risk rating for corporate loans. The loss migration analysis is updated quarterly, primarily using actual loss experience. This component is then adjusted based on management's consideration of many internal and external qualitative factors, including:
Changes in the composition of the loan portfolio, trends in the volume of loans, and trends in delinquent and non-accrual loans that could indicate that historical trends do not reflect current conditions.
Changes in credit policies and procedures, such as underwriting standards and collection, charge-off, and recovery practices.
Changes in the experience, ability, and depth of credit management and other relevant staff.
Changes in the quality of the Company's loan review system and Board of Directors oversight.
The effect of any concentration of credit and changes in the level of concentrations, such as loan type or risk rating.
Changes in the value of the underlying collateral for collateral-dependent loans.
Changes in the national and local economy that affect the collectability of various segments of the portfolio.
The effect of other external factors, such as competition and legal and regulatory requirements, on the Company's loan portfolio.
The allowance for loan losses also consists of an allowance on acquired and covered non-PCI and PCI loans. No allowance for loan losses is recorded on acquired loans at the acquisition date. Subsequent to the acquisition date, an allowance for credit losses is established as necessary to reflect credit deterioration. The acquired non-PCI allowance is based on management's evaluation of the acquired non-PCI loan portfolio giving consideration to the current portfolio balance, including the remaining acquisition adjustments, maturity dates, and overall credit quality. The allowance for covered non-PCI loans is calculated in the same manner as the general reserve component based on a loss migration analysis as discussed above. The acquired and covered PCI allowance reflects the difference between the carrying value and the discounted expected future cash flows of the acquired and covered PCI loans. On a periodic basis, the adequacy of this allowance is determined through a re-estimation of expected future cash flows on all of the outstanding acquired and covered PCI loans using either a probability of default/loss given default ("PD/LGD") methodology or a specific review methodology. The PD/LGD model is a loss model that estimates expected future cash flows using a probability of default curve and loss given default estimates. Acquired non-PCI loans that have renewed subsequent to the respective acquisition dates are no longer classified as acquired loans. Instead, they are included in the general loan population and allocated an allowance based on a loss migration analysis.
Reserve for Unfunded Commitments The Company also maintains a reserve for unfunded commitments, including letters of credit, for the risk of loss inherent in these arrangements. The reserve for unfunded commitments is estimated using the loss migration analysis from the allowance for loan losses, adjusted for probabilities of future funding requirements. The reserve for unfunded commitments is included in other liabilities in the Consolidated Statements of Financial Condition.
The establishment of the allowance for credit losses involves a high degree of judgment given the difficulty of assessing the factors impacting loan repayment and estimating the timing and amount of losses. While management utilizes its best judgment and

11




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

12




adjustment to equity. For additional discussion of the sale-leaseback transaction, see Note 8 "Lease Obligations." The adoption of this guidance was applied retrospectively at the beginning of the period of adoption through a cumulative-effect adjustment and did not materially impact the Company's results of operations or liquidity, but did result in a material increase in assets, liabilities, and equity.
Premium Amortization on Purchased Callable Debt Securities: In March of 2017, the FASB issued ASU 2017-08 that shortens the amortization period for the premium on certain purchased callable debt securities to the earliest call date. This guidance is effective for annual and interim periods beginning after December 15, 2018. The adoption of this guidance on January 1, 2019 did not materially impact the Company's financial condition, results of operations, or liquidity.
Improvements to Nonemployee Share-based Payment Accounting: In June of 2018, the FASB issued ASU 2018-07 that aligns the measurement and classification guidance for share-based payments to nonemployees with the guidance for share-based payments to employees. This guidance is effective for annual and interim periods beginning after December 15, 2018. The adoption of this guidance on January 1, 2019 did not materially impact the Company's financial condition, results of operations, or liquidity.
Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract: In August of 2018, the FASB issued ASU 2018-15 to reduce diversity in practice by clarifying when implementation costs are required to be capitalized in a cloud computing arrangement that is a service contract. This guidance is effective for annual and interim periods beginning after December 15, 2019. The early adoption of this guidance on January 1, 2019 did not materially impact the Company's financial condition, results of operations, or liquidity.
Derivatives and Hedging, Inclusion of the Secured Overnight Financing Rate ("SOFR") Overnight Index Swap Rate as a Benchmark Interest Rate for Hedge Accounting Purposes: In October of 2018, the FASB issued ASU 2018-16 adding the overnight index swap rate based on the SOFR to the list of United States benchmark interest rates eligible for hedge accounting purposes. This guidance is effective for annual and interim periods beginning after December 15, 2018. The adoption of this guidance on January 1, 2019 did not materially impact the Company's financial condition, results of operations, or liquidity.
Accounting Pronouncements Pending Adoption
Measurement of Credit Losses on Financial Instruments: In June of 2016, the FASB issued ASU 2016-13 that will require entities to present financial assets measured at amortized cost at the net amount expected to be collected, considering an entity's current estimate of all expected credit losses. In addition, credit losses relating to available-for-sale debt securities will be required to be recorded through an allowance for credit losses, with changes in credit loss estimates recognized through current earnings. This guidance is effective for annual and interim periods beginning after December 15, 2019. Early adoption is permitted, but not for periods beginning before December 15, 2018. Management is evaluating the guidance and the impact to the Company's financial condition, results of operations, or liquidity.
Accounting for Goodwill Impairment: In January of 2017, the FASB issued ASU 2017-04 that simplifies the accounting for goodwill impairment for all entities. The new guidance eliminates the requirement to calculate the implied fair value of goodwill using the second step of the quantitative two-step goodwill impairment model prescribed under current accounting guidance. Under the new guidance, if a reporting unit's carrying amount exceeds its fair value, an entity will record an impairment charge based on that difference. This guidance is effective for annual and interim goodwill impairment testing dates beginning after December 15, 2019. Early adoption is permitted for annual and interim goodwill impairment testing dates after January 1, 2017. Management does not expect the adoption of this guidance will materially impact the Company's financial condition, results of operations, or liquidity.
Changes to the Disclosure Requirements for Fair Value Measurement: In August of 2018, the FASB issued ASU 2018-13 that eliminates, modifies, and adds to certain fair value measurement disclosure requirements associated with the three-tiered fair value hierarchy. This guidance is effective for annual and interim periods beginning after December 15, 2019. Early adoption is permitted. Management does not expect the adoption of this guidance will materially impact the Company's financial condition, results of operations, or liquidity.
Changes to the Disclosure Requirements for Defined Benefit Plans: In August of 2018, the FASB issued ASU 2018-14 that makes minor changes and clarifications to the disclosure requirements for entities that sponsor defined benefit plans. This guidance is effective for annual and interim periods beginning after December 15, 2020. Early adoption is permitted. Management does not expect the adoption of this guidance will materially impact the Company's financial condition, results of operations, or liquidity.

13




3. ACQUISITIONS
Pending Acquisitions    
Bridgeview Bancorp, Inc.
On December 6, 2018, the Company entered into a merger agreement to acquire Bridgeview Bancorp, Inc. ("Bridgeview"), the holding company for Bridgeview Bank Group. As of December 31, 2018, Bridgeview had approximately $1.3 billion of assets, $1.0 billion of deposits, and $800.0 million of loans, excluding Bridgeview's mortgage division, which the Company is not acquiring. The merger agreement provides for a fixed exchange ratio of 0.2767 shares of Company common stock, plus $1.79 in cash, for each share of Bridgeview common stock, subject to certain adjustments. The Company anticipates issuing approximately 4.7 million shares at closing. As of the date of announcement, the overall transaction was valued at approximately $145 million. The acquisition is subject to the completion of various closing conditions, and is anticipated to close on May 9, 2019.
Completed Acquisitions
Northern Oak Wealth Management, Inc.
On January 16, 2019, the Company completed its acquisition of Northern Oak Wealth Management, Inc. ("Northern Oak"), a registered investment adviser based in Milwaukee, Wisconsin with approximately $800.0 million of assets under management at closing. The fair value adjustments, including goodwill, associated with this transaction remain preliminary and may change as the Company continues to finalize the fair value of the assets and liabilities acquired.
Northern States Financial Corporation
On October 12, 2018, the Company completed its acquisition of Northern States Financial Corporation ("Northern States"), the holding company for NorStates Bank, based in Waukegan, Illinois. At closing, the Company acquired $578.7 million of total assets, $463.2 million of deposits, and $284.9 million of loans. Under the terms of the merger agreement, on October 12, 2018, each outstanding share of Northern States common stock, excluding shares held in treasury or otherwise owned by the Company or Northern States, was canceled and converted into the right to receive 0.0363 of a share of Company common stock. The merger consideration totaled $83.3 million and resulted in the Company issuing 3,310,912 shares of Company common stock. Goodwill of $30.5 million associated with the acquisition was recorded by the Company. All Northern States operating systems were converted during the fourth quarter of 2018.
During the first quarter of 2019, the Company updated the fair value adjustments associated with the Northern States transaction. The adjustments were recognized in the current period in accordance with accounting guidance applicable to business combinations. The fair value adjustments, including goodwill, associated with this transaction remain preliminary and may change as the Company continues to finalize the fair value of the assets and liabilities acquired.

14




The following table presents the assets acquired and liabilities assumed, net of the fair value adjustments, in the Northern States transaction as of the acquisition date. The assets acquired and liabilities assumed, both intangible and tangible, were recorded at their estimated fair values as of the acquisition date and have been accounted for under the acquisition method of accounting.
Acquisition Activity
(Dollar amounts in thousands, except share and per share data)
 
 
Northern States
 
 
October 12, 2018
Assets
 
 
Cash and due from banks and interest-bearing deposits in other banks
 
$
160,145

Equity securities
 
3,915

Securities available-for-sale
 
47,149

FHLB and FRB stock
 
554

Loans
 
284,924

OREO
 
2,549

Investment in BOLI
 
11,104

Goodwill
 
30,518

Other intangible assets
 
12,230

Premises, furniture, and equipment
 
5,414

Accrued interest receivable and other assets
 
20,170

Total assets
 
$
578,672

Liabilities
 
 
Noninterest-bearing deposits
 
$
346,714

Interest-bearing deposits
 
116,446

Total deposits
 
463,160

Borrowed funds
 
18,218

Senior and subordinated debt
 
8,038

Accrued interest payable and other liabilities
 
5,953

Total liabilities
 
495,369

Consideration Paid
 
 
Common stock (2018 - 3,310,912, shares issued at $25.16 per share), net of issuance costs
 
83,303

Cash paid
 

Total consideration paid
 
83,303

 
 
$
578,672

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

15




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 2018 10-K.
A summary of the Company's securities portfolio by category and maturity is presented in the following tables.
Securities Portfolio
(Dollar amounts in thousands)
 
 
As of March 31, 2019
 
As of December 31, 2018
 
 
Amortized Cost
 
Gross Unrealized
 
Fair
 Value
 
Amortized Cost
 
Gross Unrealized
 
Fair
 Value
 
 
 
Gains
 
Losses
 
 
 
Gains
 
Losses
 
Securities Available-for-Sale
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. treasury securities
 
$
40,938

 
$
47

 
$
(93
)
 
$
40,892

 
$
37,925

 
$
17

 
$
(175
)
 
$
37,767

U.S. agency securities
 
129,486

 
93

 
(1,258
)
 
128,321

 
144,125

 
45

 
(1,607
)
 
142,563

Collateralized mortgage
  obligations ("CMOs")
 
1,365,007

 
6,107

 
(14,084
)
 
1,357,030

 
1,336,531

 
3,362

 
(24,684
)
 
1,315,209

Other mortgage-backed
  securities ("MBSs")
 
491,689

 
1,651

 
(6,314
)
 
487,026

 
477,665

 
520

 
(11,251
)
 
466,934

Municipal securities
 
231,790

 
2,289

 
(603
)
 
233,476

 
229,600

 
461

 
(2,874
)
 
227,187

Corporate debt securities
 
104,444

 
360

 
(1,354
)
 
103,450

 
86,074

 

 
(3,725
)
 
82,349

Total securities
  available-for-sale
 
$
2,363,354

 
$
10,547

 
$
(23,706
)
 
$
2,350,195

 
$
2,311,920

 
$
4,405

 
$
(44,316
)
 
$
2,272,009

Securities Held-to-Maturity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Municipal securities
 
$
12,842

 
$

 
$
(187
)
 
$
12,655

 
$
10,176

 
$

 
$
(305
)
 
$
9,871

Equity Securities
 
 
 
 
 
 
 
$
33,304

 
 
 
 
 
 
 
$
30,806

Remaining Contractual Maturity of Securities
(Dollar amounts in thousands)
 
 
As of March 31, 2019
 
 
Available-for-Sale
 
Held-to-Maturity
 
 
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
One year or less
 
$
118,322

 
$
118,201

 
$
10,336

 
$
10,186

After one year to five years
 
156,648

 
156,488

 
2,190

 
2,158

After five years to ten years
 
231,688

 
231,450

 
316

 
311

After ten years
 

 

 

 

Securities that do not have a single contractual maturity date
 
1,856,696

 
1,844,056

 

 

Total
 
$
2,363,354

 
$
2,350,195

 
$
12,842

 
$
12,655

The carrying value of securities available-for-sale that were pledged to secure deposits or for other purposes as permitted or required by law totaled $1.3 billion as of March 31, 2019 and $1.2 billion as of December 31, 2018. No securities held-to-maturity were pledged as of March 31, 2019 or December 31, 2018.
During the quarters ended March 31, 2019 and 2018 there were no realized gains on securities available-for-sale.
Accounting guidance requires that the credit portion of an OTTI charge be recognized through income. If a decline in fair value below carrying value is not attributable to credit deterioration and the Company does not intend to sell the security or believe it would not be more likely than not required to sell the security prior to recovery, the Company records the non-credit related portion of the decline in fair value in other comprehensive income (loss).
There was no outstanding balance of OTTI previously recognized on securities available-for-sale as of either March 31, 2019 or December 31, 2018. During the quarters ended March 31, 2019 and 2018 no OTTI was recognized on securities available-for-sale.

16




The following table presents the aggregate amount of unrealized losses and the aggregate related fair values of securities with unrealized losses as of March 31, 2019 and December 31, 2018.
Securities in an Unrealized Loss Position
(Dollar amounts in thousands)
 
 
 
 
Less Than 12 Months
 
12 Months or Longer
 
Total
 
 
Number of
Securities
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
As of March 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
Securities Available-for-Sale
 
 
 
 
 
 
 
 
 
 
 
 
U.S. treasury securities
 
12

 
$
4,987

 
$
1

 
$
19,902

 
$
92

 
$
24,889

 
$
93

U.S. agency securities
 
64

 
20,991

 
212

 
90,081

 
1,046

 
111,072

 
1,258

CMOs
 
221

 
27,366

 
21

 
904,014

 
14,063

 
931,380

 
14,084

MBSs
 
101

 
16,064

 
36

 
347,006

 
6,278

 
363,070

 
6,314

Municipal securities
 
188

 
123

 

 
84,305

 
603

 
84,428

 
603

Corporate debt securities
 
16

 
52,947

 
653

 
31,782

 
701

 
84,729

 
1,354

Total
 
602

 
$
122,478

 
$
923

 
$
1,477,090

 
$
22,783

 
$
1,599,568

 
$
23,706

Securities Held-to-Maturity
 
 
 
 
 
 
 
 
 
 
 
 
Municipal securities
 
6

 
$

 
$

 
$
12,655

 
$
187

 
$
12,655

 
$
187

As of December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Securities Available-for-Sale
 
 
 
 
 
 
 
 
 
 
 
 
U.S. treasury securities
 
17

 
$
15,894

 
$
57

 
$
13,886

 
$
118

 
$
29,780

 
$
175

U.S. agency securities
 
74

 
34,263

 
320

 
93,227

 
1,287

 
127,490

 
1,607

CMOs
 
234

 
171,901

 
1,671

 
863,747

 
23,013

 
1,035,648

 
24,684

MBSs
 
118

 
135,791

 
1,715

 
284,273

 
9,536

 
420,064

 
11,251

Municipal securities
 
423

 
60,863

 
558

 
109,935

 
2,316

 
170,798

 
2,874

Corporate debt securities
 
16

 
82,349

 
3,725

 

 

 
82,349

 
3,725

Total
 
882

 
$
501,061

 
$
8,046

 
$
1,365,068

 
$
36,270

 
$
1,866,129

 
$
44,316

Securities Held-to-Maturity
 
 
 
 
Municipal securities
 
5

 
$

 
$

 
$
9,871

 
$
305

 
$
9,871

 
$
305

Substantially all of the Company's CMOs and other MBSs are either backed by U.S. government-owned agencies or issued by U.S. government-sponsored enterprises. Municipal securities are issued by municipal authorities, and the majority are supported by third-party insurance or some other form of credit enhancement. Management does not believe any of these securities with unrealized losses as of March 31, 2019 represent OTTI related to credit deterioration. These unrealized losses are attributed to changes in interest rates and temporary market movements. The Company does not intend to sell these securities and it is not more likely than not that the Company will be required to sell them before recovery of their amortized cost basis, which may be at maturity.

17




5. LOANS
Loans Held-for-Investment
The following table presents the Company's loans held-for-investment by class.
Loan Portfolio
(Dollar amounts in thousands)
 
 
As of
 
 
March 31,
2019
 
December 31,
2018
Commercial and industrial
 
$
4,183,262

 
$
4,120,293

Agricultural
 
438,461

 
430,928

Commercial real estate:
 
 
 
 
Office, retail, and industrial
 
1,806,892

 
1,820,917

Multi-family
 
752,943

 
764,185

Construction
 
683,475

 
649,337

Other commercial real estate
 
1,309,878

 
1,361,810

Total commercial real estate
 
4,553,188

 
4,596,249

Total corporate loans
 
9,174,911

 
9,147,470

Home equity
 
862,068

 
851,607

1-4 family mortgages
 
1,086,264

 
1,017,181

Installment
 
445,760

 
430,525

Total consumer loans
 
2,394,092

 
2,299,313

Total loans
 
$
11,569,003

 
$
11,446,783

Deferred loan fees included in total loans
 
$
6,937

 
$
6,715

Overdrawn demand deposits included in total loans
 
8,559

 
8,583

The Company primarily lends to community-based and mid-sized businesses, commercial real estate customers, and consumers in its markets. Within these areas, the Company diversifies its loan portfolio by loan type, industry, and borrower.
It is the Company's policy to review each prospective credit to determine the appropriateness and the adequacy of security or collateral prior to making a loan. In the event of borrower default, the Company seeks recovery in compliance with state lending laws, the Company's lending standards, and credit monitoring and remediation procedures. A discussion of risk characteristics relevant to each portfolio segment is presented in Note 5, "Loans" to the Consolidated Financial Statements in the Company's 2018 10-K.

18




Loan Sales
The following table presents loan sales for the quarters ended March 31, 2019 and 2018.
Loan Sales
(Dollar amounts in thousands)
 
 
Quarters Ended 
 March 31,
 
 
2019
 
2018
Corporate loan sales
 
 
 
 
Proceeds from sales
 
$
3,198

 
$
8,321

Less book value of loans sold
 
3,116

 
8,123

Net gains on corporate loan sales(1)
 
82

 
198

1-4 family mortgage loan sales
 
 
 
 
Proceeds from sales
 
$
58,783

 
$
65,185

Less book value of loans sold
 
57,455

 
63,758

Net gains on 1-4 family mortgage loan sales(2)
 
1,328

 
1,427

Total net gains on loan sales
 
$
1,410

 
$
1,625

(1) 
Net gains on corporate loan sales are included in other service charges, commissions, and fees in the Condensed Consolidated Statements of Income.
(2) 
Net gains on 1-4 family mortgage loan sales are included in mortgage banking income in the Condensed Consolidated Statements of Income.
The Company retained servicing responsibilities for a portion of the 1-4 family mortgage loans sold and collects servicing fees equal to a percentage of the outstanding principal balance. For additional disclosure related to the Company's obligations resulting from the sale of certain 1-4 family mortgage loans, see Note 12, "Commitments, Guarantees, and Contingent Liabilities."

19




6. ACQUIRED AND COVERED LOANS
The significant accounting policies related to acquired and covered loans, which are classified as PCI and non-PCI, are presented in Note 1, "Summary of Significant Accounting Policies."
The following table presents the carrying amount of acquired and covered PCI and non-PCI loans as of March 31, 2019 and December 31, 2018.
Acquired and Covered Loans(1) 
(Dollar amounts in thousands)
 
 
As of March 31, 2019
 
As of December 31, 2018
 
 
PCI
 
Non-PCI
 
Total
 
PCI
 
Non-PCI
 
Total
Acquired loans
 
$
96,455

 
$
1,086,779

 
$
1,183,234

 
$
108,049

 
$
1,247,492

 
$
1,355,541

Covered loans
 
5,652

 
4,488

 
10,140

 
5,819

 
4,869

 
10,688

Total acquired and covered loans
 
$
102,107

 
$
1,091,267

 
$
1,193,374

 
$
113,868

 
$
1,252,361

 
$
1,366,229

(1) 
Included in loans in the Consolidated Statements of Condition.
The outstanding balance of PCI loans was $156.0 million and $175.2 million as of March 31, 2019 and December 31, 2018, respectively.
Acquired non-PCI loans that are renewed are no longer classified as acquired loans. These loans totaled $483.1 million and $458.0 million as of March 31, 2019 and December 31, 2018, respectively.
In connection with the FDIC Agreements, the Company recorded an indemnification asset. The carrying value of the FDIC indemnification asset was $1.8 million and $2.1 million as of March 31, 2019 and December 31, 2018, respectively.
Changes in the accretable yield for acquired and covered PCI loans were as follows.
Changes in Accretable Yield
(Dollar amounts in thousands)
 
 
Quarters Ended 
 March 31,
 
 
2019
 
2018
Beginning balances
 
$
43,725

 
$
32,957

Accretion
 
(4,201
)
 
(3,618
)
Other(1)
 
11

 
7,204

Ending balance
 
$
39,535

 
$
36,543

(1) 
Increases represent a rise in the expected future cash flows to be collected over the remaining estimated life of the underlying portfolio, while decreases result from the resolution of certain loans occurring earlier than anticipated.
Total accretion on acquired and covered PCI and non-PCI loans for the quarters ended March 31, 2019 and 2018 was $6.4 million and $5.1 million, respectively.

20




7. PAST DUE LOANS, ALLOWANCE FOR CREDIT LOSSES, IMPAIRED LOANS, AND TDRS
Past Due and Non-accrual Loans
The following table presents an aging analysis of the Company's past due loans as of March 31, 2019 and December 31, 2018. The aging is determined without regard to accrual status. The table also presents non-performing loans, consisting of non-accrual loans (the majority of which are past due) and loans 90 days or more past due and still accruing interest, as of each balance sheet date.
Aging Analysis of Past Due Loans and Non-performing Loans by Class
(Dollar amounts in thousands)
 
 
Aging Analysis (Accruing and Non-accrual)
 
 
Non-performing Loans
 
 
Current(1)
 
30-89 Days
Past Due
 
90 Days or
More Past
Due
 
Total
Past Due
 
Total
Loans
 
 
Non-
accrual(2)
 
90 Days or More Past Due, Still Accruing Interest
As of March 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
$
4,139,771

 
$
16,386

 
$
27,105

 
$
43,491

 
$
4,183,262

 
 
$
34,694

 
$
3,280

Agricultural
 
436,328

 

 
2,133

 
2,133

 
438,461

 
 
2,359

 
101

Commercial real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Office, retail, and industrial
 
1,777,762

 
19,960

 
9,170

 
29,130

 
1,806,892

 
 
17,484

 
3,884

Multi-family
 
746,107

 
3,866

 
2,970

 
6,836

 
752,943

 
 
2,959

 
11

Construction
 
678,380

 
5,066

 
29

 
5,095

 
683,475

 
 

 
29

Other commercial real estate
 
1,304,499

 
4,227

 
1,152

 
5,379

 
1,309,878

 
 
2,971

 
251

Total commercial real estate
 
4,506,748

 
33,119

 
13,321

 
46,440

 
4,553,188

 
 
23,414

 
4,175

Total corporate loans
 
9,082,847

 
49,505

 
42,559

 
92,064

 
9,174,911

 
 
60,467

 
7,556

Home equity
 
855,502

 
4,116

 
2,450

 
6,566

 
862,068

 
 
5,836

 
39

1-4 family mortgages
 
1,082,513

 
1,574

 
2,177

 
3,751

 
1,086,264

 
 
3,902

 

Installment
 
441,556

 
3,353

 
851

 
4,204

 
445,760

 
 

 
851

Total consumer loans
 
2,379,571

 
9,043

 
5,478

 
14,521

 
2,394,092

 
 
9,738

 
890

Total loans
 
$
11,462,418

 
$
58,548

 
$
48,037

 
$
106,585

 
$
11,569,003

 
 
$
70,205

 
$
8,446

As of December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
$
4,085,164

 
$
8,832

 
$
26,297

 
$
35,129

 
$
4,120,293

 
 
$
33,507

 
$
422

Agricultural
 
428,357

 
940

 
1,631

 
2,571

 
430,928

 
 
1,564

 
101

Commercial real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Office, retail, and industrial
 
1,803,059

 
8,209

 
9,649

 
17,858

 
1,820,917

 
 
6,510

 
4,081

Multi-family
 
759,402

 
1,487

 
3,296

 
4,783

 
764,185

 
 
3,107

 
189

Construction
 
645,774

 
3,419

 
144

 
3,563

 
649,337

 
 
144

 

Other commercial real estate
 
1,353,442

 
4,921

 
3,447

 
8,368

 
1,361,810

 
 
2,854

 
2,197

Total commercial real estate
 
4,561,677

 
18,036