Company Quick10K Filing
Quick10K
First Midwest Bancorp
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$23.64 106 $2,510
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
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
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PEBO Peoples Bancorp
CNBKA Century Bancorp
PWOD Penns Woods Bancorp
CBNK Chicopee Bancorp
SBFG SB Financial Group
BKJ Bancorp of New Jersey
FMBI 2018-09-30
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-31.1 fmbi09302018ex311.htm
EX-31.2 fmbi09302018ex312.htm
EX-32.1 fmbi09302018ex321.htm
EX-32.2 fmbi09302018ex322.htm

First Midwest Bancorp Earnings 2018-09-30

FMBI 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 fmbi0930201810-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 September 30, 2018
 
 
 
 
 
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
______________________
 
a3282014fmbilogoa03a16.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].
As of October 31, 2018, there were 106,382,834 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)
 
 
 
 
 
September 30,
2018
 
December 31,
2017
Assets
 
 
 
 
(Unaudited)
 
 
Cash and due from banks
 
$
185,239

 
$
192,800

Interest-bearing deposits in other banks
 
111,360

 
153,770

Trading securities, at fair value
 

 
20,447

Equity securities, at fair value
 
29,046

 

Securities available-for-sale, at fair value
 
2,179,410

 
1,884,209

Securities held-to-maturity, at amortized cost
 
12,673

 
13,760

Federal Home Loan Bank ("FHLB") and Federal Reserve Bank ("FRB") stock, at cost
 
87,728

 
69,708

Loans
 
11,050,548

 
10,437,812

Allowance for loan losses
 
(99,925
)
 
(95,729
)
Net loans
 
10,950,623

 
10,342,083

Other real estate owned ("OREO")
 
12,244

 
20,851

Premises, furniture, and equipment, net
 
126,389

 
123,316

Investment in bank-owned life insurance ("BOLI")
 
284,074

 
279,900

Goodwill and other intangible assets
 
751,248

 
754,757

Accrued interest receivable and other assets
 
231,465

 
221,451

Total assets
 
$
14,961,499

 
$
14,077,052

Liabilities
 
 
 
 
Noninterest-bearing deposits
 
$
3,618,384

 
$
3,576,190

Interest-bearing deposits
 
7,908,730

 
7,477,135

Total deposits
 
11,527,114

 
11,053,325

Borrowed funds
 
1,073,546

 
714,884

Senior and subordinated debt
 
195,595

 
195,170

Accrued interest payable and other liabilities
 
247,569

 
248,799

Total liabilities
 
13,043,824

 
12,212,178

Stockholders' Equity
 
 
 
 
Common stock
 
1,124

 
1,123

Additional paid-in capital
 
1,028,635

 
1,031,870

Retained earnings
 
1,164,133

 
1,074,990

Accumulated other comprehensive loss, net of tax
 
(75,133
)
 
(33,036
)
Treasury stock, at cost
 
(201,084
)
 
(210,073
)
Total stockholders' equity
 
1,917,675

 
1,864,874

Total liabilities and stockholders' equity
 
$
14,961,499

 
$
14,077,052

 
 
 
 
 
 
 
 
 
September 30, 2018
 
December 31, 2017
 
(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

 
112,359

 

 
112,351

Shares outstanding

 
103,058

 

 
102,717

Treasury shares

 
9,301

 

 
9,634

 
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,
 
 
2018
 
2017
 
2018
 
2017
Interest Income
 
 
 
 
 
 
 
 
Loans
 
$
133,997

 
$
118,101

 
$
380,420

 
$
345,286

Investment securities
 
14,170

 
10,667

 
38,936

 
31,678

Other short-term investments
 
1,365

 
1,148

 
3,609

 
3,167

Total interest income
 
149,532

 
129,916

 
422,965

 
380,131

Interest Expense
 
 
 
 
 
 
 
 
Deposits
 
10,426

 
4,369

 
24,637

 
11,307

Borrowed funds
 
3,927

 
2,544

 
10,919

 
6,837

Senior and subordinated debt
 
3,152

 
3,110

 
9,416

 
9,314

Total interest expense
 
17,505

 
10,023

 
44,972

 
27,458

Net interest income
 
132,027

 
119,893

 
377,993

 
352,673

Provision for loan losses
 
11,248

 
10,109

 
38,043

 
23,266

Net interest income after provision for loan losses
 
120,779

 
109,784

 
339,950

 
329,407

Noninterest Income
 
 
 
 
 
 
 
 
Service charges on deposit accounts
 
12,378

 
12,561

 
36,088

 
36,079

Wealth management fees
 
10,622

 
10,169

 
32,561

 
30,354

Card-based fees, net
 
4,123

 
5,992

 
12,450

 
22,940

Capital market products income
 
1,936

 
2,592

 
6,313

 
6,185

Mortgage banking income
 
1,657

 
2,246

 
5,790

 
5,779

Other service charges, commissions, and fees
 
2,786

 
4,745

 
8,172

 
16,043

Net securities gains
 

 
3,197

 

 
3,481

Other income
 
2,164

 
1,846

 
6,756

 
7,383

Total noninterest income
 
35,666

 
43,348

 
108,130

 
128,244

Noninterest Expense
 
 
 
 
 
 
 
 
Salaries and employee benefits
 
54,160

 
55,638

 
168,879

 
165,985

Net occupancy and equipment expense
 
13,183

 
12,115

 
40,607

 
36,925

Professional services
 
7,944

 
8,498

 
23,822

 
26,073

Technology and related costs
 
4,763

 
4,505

 
14,371

 
13,423

Net OREO expense
 
(413
)
 
657

 
399

 
3,988

Other expenses
 
14,541

 
15,393

 
40,083

 
47,066

Delivering Excellence implementation costs
 
2,239

 

 
17,254

 

Acquisition and integration related expenses
 
60

 
384

 
60

 
20,123

Total noninterest expense
 
96,477

 
97,190

 
305,475

 
313,583

Income before income tax expense
 
59,968

 
55,942

 
142,605

 
144,068

Income tax expense
 
6,616

 
17,707

 
26,143

 
48,028

Net income
 
$
53,352

 
$
38,235

 
$
116,462

 
$
96,040

Per Common Share Data
 
 
 
 
 
 
 
 
Basic earnings per common share
 
$
0.52

 
$
0.37

 
$
1.13

 
$
0.94

Diluted earnings per common share
 
$
0.52

 
$
0.37

 
$
1.13

 
$
0.94

Dividends declared per common share
 
$
0.11

 
$
0.10

 
$
0.33

 
$
0.29

Weighted-average common shares outstanding
 
102,178

 
101,752

 
102,087

 
101,307

Weighted-average diluted common shares outstanding
 
102,178

 
101,772

 
102,092

 
101,327

 
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,
 
 
2018
 
2017
 
2018
 
2017
Net income
 
$
53,352

 
$
38,235

 
$
116,462

 
$
96,040

Securities Available-for-Sale
 
 
 
 
 
 
 
 
Unrealized holding (losses) gains:
 
 
 
 
 
 
 
 
Before tax
 
(13,632
)
 
428

 
(47,765
)
 
11,078

Tax effect
 
3,548

 
(174
)
 
13,055

 
(4,436
)
Net of tax
 
(10,084
)
 
254

 
(34,710
)
 
6,642

Reclassification of net gains included in net income:
 
 
 
 
 
 
Before tax
 

 
3,197

 

 
3,481

Tax effect
 

 
(1,311
)
 

 
(1,425
)
Net of tax
 

 
1,886

 

 
2,056

Net unrealized holding (losses) gains
 
(10,084
)
 
(1,632
)
 
(34,710
)
 
4,586

Derivative Instruments
 
 
 
 
 
 
 
 
Unrealized holding (losses) gains:
 
 
 
 
 
 
 
 
Before tax
 
(880
)
 
276

 
(948
)
 
(2,849
)
Tax effect
 
231

 
(113
)
 
250

 
1,137

Net of tax
 
(649
)
 
163

 
(698
)
 
(1,712
)
Total other comprehensive (loss) income
 
(10,733
)
 
(1,469
)
 
(35,408
)
 
2,874

Total comprehensive income
 
$
42,619

 
$
36,766

 
$
81,054

 
$
98,914



 
 
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, 2016
 
$
(22,645
)
 
$
(1,176
)
 
$
(17,089
)
 
$
(40,910
)
Other comprehensive income
 
4,586

 
(1,712
)
 

 
2,874

Balance at September 30, 2017
 
$
(18,059
)
 
$
(2,888
)
 
$
(17,089
)
 
$
(38,036
)
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
 
(34,710
)
 
(698
)
 

 
(35,408
)
Balance at September 30, 2018
 
$
(51,550
)
 
$
(5,245
)
 
$
(18,338
)
 
$
(75,133
)
(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. For further discussion of this guidance, see Note 2, "Recent Accounting Pronouncements."
 
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, 2016
 
81,325

 
$
913

 
$
498,937

 
$
1,016,674

 
$
(40,910
)
 
$
(218,534
)
 
$
1,257,080

Net income
 

 

 

 
96,040

 

 

 
96,040

Other comprehensive income
 

 

 

 

 
2,874

 

 
2,874

Common dividends declared
  ($0.29 per common share)
 

 

 

 
(29,793
)
 

 

 
(29,793
)
Acquisitions, net of issuance costs
 
21,078

 
210

 
533,322

 

 

 
558

 
534,090

Common stock issued
 
7

 

 
175

 

 

 

 
175

Restricted stock activity
 
321

 

 
(11,987
)
 

 

 
8,308

 
(3,679
)
Treasury stock issued to benefit plans
 
(9
)
 

 
1

 

 

 
(212
)
 
(211
)
Share-based compensation expense
 

 

 
8,554

 

 

 

 
8,554

Balance at September 30, 2017
 
102,722

 
$
1,123

 
$
1,029,002

 
$
1,082,921

 
$
(38,036
)
 
$
(209,880
)
 
$
1,865,130

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
 

 

 

 
116,462

 

 

 
116,462

Other comprehensive loss
 

 

 

 

 
(35,408
)
 

 
(35,408
)
Common dividends declared
  ($0.33 per common share)
 

 

 

 
(34,008
)
 

 

 
(34,008
)
Common stock issued
 
8

 
1

 
227

 

 

 
667

 
895

Restricted stock activity
 
335

 

 
(12,667
)
 

 

 
8,426

 
(4,241
)
Treasury stock issued to benefit plans
 
(2
)
 

 
41

 

 

 
(104
)
 
(63
)
Share-based compensation expense
 

 

 
9,164

 

 

 

 
9,164

Balance at September 30, 2018
 
103,058

 
$
1,124

 
$
1,028,635

 
$
1,164,133

 
$
(75,133
)
 
$
(201,084
)
 
$
1,917,675

(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. 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)
 
 
Nine Months Ended 
 September 30,
 
 
2018
 
2017
Operating Activities
 
 
 
 
Net income
 
$
116,462

 
$
96,040

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Provision for loan losses
 
38,043

 
23,266

Depreciation of premises, furniture, and equipment
 
11,693

 
10,477

Net amortization of premium on securities
 
11,444

 
12,334

Net securities gains
 

 
(3,481
)
Gains on sales of 1-4 family mortgages and corporate loans held-for-sale
 
(4,475
)
 
(5,354
)
Net (gains) losses on sales and valuation adjustments of OREO
 
(318
)
 
944

Amortization of the FDIC indemnification asset
 
906

 
906

Net losses (gains) on sales and valuation adjustments of premises, furniture, and equipment
 
5,423

 
(364
)
BOLI income
 
(4,280
)
 
(4,095
)
Share-based compensation expense
 
9,164

 
8,554

Tax benefit related to share-based compensation
 
208

 
252

Amortization of other intangible assets
 
5,368

 
6,059

Originations of mortgage loans held-for-sale
 
(175,408
)
 
(183,907
)
Proceeds from sales of mortgage loans held-for-sale
 
193,476

 
190,544

Net increase in equity securities
 
(1,191
)
 

Net increase in trading securities
 

 
(2,505
)
Net increase in accrued interest receivable and other assets
 
(14,725
)
 
(191,492
)
Net decrease in accrued interest payables and other liabilities
 
(1,949
)
 
(8,463
)
Net cash provided by (used in) operating activities
 
189,841

 
(50,285
)
Investing Activities
 
 
 
 
Proceeds from maturities, repayments, and calls of securities available-for-sale
 
233,659

 
251,160

Proceeds from sales of securities available-for-sale
 

 
437,401

Purchases of securities available-for-sale
 
(595,477
)
 
(289,244
)
Proceeds from maturities, repayments, and calls of securities held-to-maturity
 
1,087

 
7,663

Purchases of securities held-to-maturity
 

 
(10
)
Net purchases of FHLB stock
 
(18,020
)
 
(7,330
)
Net increase in loans
 
(649,197
)
 
(392,384
)
Premiums paid on BOLI, net of proceeds from claims
 
106

 
132

Proceeds from sales of OREO
 
12,951

 
17,460

Proceeds from sales of premises, furniture, and equipment
 
549

 
13,135

Purchases of premises, furniture, and equipment
 
(20,738
)
 
(11,680
)
Net cash received from acquisitions
 

 
41,717

Net cash (used in) provided by investing activities
 
(1,035,080
)
 
68,020

Financing Activities
 
 
 
 
Net increase in deposit accounts
 
473,789

 
356,020

Net increase (decrease) in borrowed funds
 
358,662

 
(178,472
)
Cash dividends paid
 
(32,942
)
 
(26,852
)
Restricted stock activity
 
(4,241
)
 
(3,679
)
Net cash provided by financing activities
 
795,268

 
147,017

Net (decrease) increase in cash and cash equivalents
 
(49,971
)
 
164,752

Cash and cash equivalents at beginning of period
 
346,570

 
262,148

Cash and cash equivalents at end of period
 
$
296,599

 
$
426,900


7




FIRST MIDWEST BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS – (Continued)
(Dollar amounts in thousands)
(Unaudited)
 
 
Nine Months Ended 
 September 30,
 
 
2018
 
2017
Supplemental Disclosures of Cash Flow Information:
 
 
 
 
Income taxes (refunded) paid
 
$
(7,001
)
 
$
14,310

Interest paid to depositors and creditors
 
43,270

 
27,538

Dividends declared, but unpaid
 
11,250

 
10,184

Stock issued for acquisitions, net of issuance costs
 

 
534,090

Non-cash transfers of loans to OREO
 
4,026

 
3,770

Non-cash transfers of loans held-for-investment to loans held-for-sale
 
12,373

 
42,970

Non-cash transfer of trading securities and securities available-for-sale to equity securities
 
27,855

 

 
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 and nine months ended September 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018.
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 2017 Annual Report on Form 10-K ("2017 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 2017 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

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was evaluated using various indicators, such as past due and non-accrual status. Leases and revolving loans do not qualify to be accounted for as 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.
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
Revenue from Contracts with Customers: In May of 2014, the Financial Accounting Standards Board ("FASB") issued guidance that requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In March of 2016, the FASB issued an amendment to this guidance to clarify the implementation of guidance on principal versus agent consideration. Additional amendments to clarify the implementation guidance on the identification of performance obligations and licensing were issued in April of 2016 and narrow-scope improvements and practical expedients were issued in May of 2016. The guidance is effective for annual and interim reporting periods beginning on or after December 15, 2017, and must be applied either retrospectively or using the modified retrospective approach.
The Company's revenue is comprised of net interest income on financial assets and liabilities, which is excluded from the scope of this guidance, and noninterest income. The primary sources of revenue within noninterest income are service charges on deposit accounts, wealth management fees, card-based fees, and merchant servicing fees. The adoption of this guidance on January 1, 2018, using the modified retrospective approach, affected how the Company presents merchant servicing fees, merchant card expenses, card-based fees, and cardholder expenses, which are presented on a gross basis within noninterest income and noninterest expense for the prior period and are presented on a net basis within noninterest income for the current period. Total expenses of $4.2 million and $11.9 million for the quarter and nine months ended September 30, 2018 were netted in noninterest income. The adoption of this guidance did not impact net income; therefore, a cumulative effect adjustment to opening retained earnings was not deemed necessary. Consistent with the modified retrospective approach, the Company did not adjust prior period amounts for the reclassification of merchant card expenses and cardholder expenses.
A description of the Company's revenue streams accounted for under the scope of this guidance follows:
Service charges on deposit accounts – Service charges on deposit accounts consist of account analysis fees (net fees earned on analyzed business and public checking accounts), monthly service fees, and other deposit account related fees. The Company's performance obligation for account analysis fees and monthly service fees is generally satisfied, and the related revenue recognized, over the period in which the service is provided. Other deposit account related fees are largely transactional based and, therefore, the Company's performance obligation is satisfied, and related revenue recognized, at a point in time. Payment for service charges

12




on deposit accounts is primarily received as a direct charge to customers' accounts. As a result of the adoption of this guidance, there was no impact to the method of recognizing revenue related to service charges on deposit accounts for the quarter and nine months ended September 30, 2018.
Wealth management fees – Wealth management fees represents quarterly fees due from wealth management customers as consideration for managing the customers' assets. Wealth management services include custody of assets, investment management, escrow services, fees for trust services and similar fiduciary activities. Revenue is recognized when our performance obligation is completed each quarter, which is generally the time that payment is received. Also included are fees received from a third-party broker-dealer as part of a revenue-sharing agreement. These fees are paid to us by the third-party on a quarterly basis and recognized ratably throughout the quarter as our performance obligation is satisfied. As a result of the adoption of this guidance, there was no impact to the method of recognizing revenue related to wealth management fees for the quarter and nine months ended September 30, 2018.
Card-based fees, net – Card-based fees, net consists of debit and credit card interchange fees for processing transactions, as well as various fees for automated teller machine ("ATM") and point-of-sale transactions processed through the related networks. Interchange, ATM, and point-of-sale fees from cardholder transactions represent a percentage of the underlying transaction value or a flat fee and are recognized daily in connection with the transaction processing services provided to the cardholder. Card-based fees are presented net of certain contract costs associated with the debit, credit and ATM card interchange networks. As a result of the adoption of this guidance, $1.9 million and $5.5 million of cardholder expenses are netted against card-based fees for the quarter and nine months ended September 30, 2018, respectively.
Merchant servicing fees, net – Merchant servicing fees, net is included in other service charges, commissions, and fees in the Consolidated Statements of Income. The Company acts in an agency capacity with respect to its merchants to process their debit and credit card transactions, deriving revenue from assisting another entity in transactions with the Company's customers. Merchant servicing fees represent a percentage of the underlying net transaction volume or a flat fee and are recognized monthly. Merchant servicing fees are presented net of certain contract costs associated with the third-party merchant processing. As a result of the adoption of this guidance, $2.3 million and $6.4 million of merchant card expenses are netted against merchant servicing fees for the quarter and nine months ended September 30, 2018, respectively.
Amendments to Guidance on Classifying and Measuring Financial Instruments: In January of 2016, the FASB issued guidance that will require entities to measure equity investments that do not result in consolidation and are not accounted for under the equity method at fair value. Any subsequent changes in fair value will be recognized in net income unless the investments qualify for a new practicability exception. Equity securities totaling $29.0 million are no longer classified as trading securities or securities available-for-sale. This guidance also requires entities to adjust the fair value disclosures for financial instruments carried at amortized cost from an entry price to an exit price. No changes were made to the guidance for classifying and measuring investments in debt securities and loans. Except as discussed above, the adoption of this guidance on January 1, 2018 did not materially impact the Company's financial condition, results of operations, or liquidity.
Classification of Certain Cash Receipts and Cash Payments: In August of 2016, the FASB issued guidance clarifying certain cash flow presentation and classification issues to reduce diversity in practice. The adoption of this guidance on January 1, 2018 did not materially impact the Company's financial condition, results of operations, or liquidity.
Income Taxes: In October of 2016, the FASB issued guidance that requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The adoption of this guidance on January 1, 2018 did not materially impact the Company's financial condition, results of operations, or liquidity.
Clarifying the Definition of a Business: In January of 2017, the FASB issued guidance that clarifies the definition of a business to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The adoption of this guidance on January 1, 2018 did not impact the Company's financial condition, results of operations, or liquidity.
Presentation of Defined Benefit Retirement Plan Costs: In March of 2017, the FASB issued guidance that changes how employers that sponsor defined pension and or other postretirement benefit plans present the net periodic benefit cost in the income statement. Employers are required to present the service cost component of the net periodic benefit cost in the same income statement line item as other employee compensation costs arising from services rendered during the period. Other components of net periodic benefit cost are required to be presented separately from the line item(s) that includes the service cost. The adoption of this guidance on January 1, 2018 did not materially impact the Company's financial condition, results of operations, or liquidity.
Share-based Payment Award Modifications: In May of 2017, the FASB issued guidance to reduce diversity in practice by clarifying when changes to the terms or conditions of a share-based payment award must be accounted for as a modification. The adoption of this guidance on January 1, 2018 did not materially impact the Company's financial condition, results of operations, or liquidity.

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Derivatives and Hedging: In August of 2017, the FASB issued guidance to better align the financial reporting related to hedging activities with the economic objectives of those activities and to simplify the application of current hedge accounting guidance. Entities are required to apply the guidance using a modified retrospective method as of the period of adoption. This guidance is effective for annual and interim periods beginning after December 31, 2018. Early adoption is permitted, and the Company elected to do so on January 1, 2018, which did not materially impact the Company's financial condition, results of operations, or liquidity.
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income: In February of 2018, the FASB issued guidance that requires a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017. Entities electing the reclassification are required to apply the guidance either at the beginning of the period of adoption or retrospectively for all periods impacted. This guidance is effective for annual and interim periods beginning after December 15, 2018. Early adoption is permitted and the Company elected to do so on January 1, 2018, which resulted in the reclassification of $6.8 million of stranded tax effects from accumulated other comprehensive loss to retained earnings as of the beginning of the period of adoption.
Accounting Pronouncements Pending Adoption
Leases: In February of 2016, the FASB issued guidance 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. Early adoption is permitted.
The Company will adopt this guidance on January 1, 2019, which will result in the recognition of right-of-use assets and associated lease liabilities for its operating leases. The amount of right-of-use assets and associated lease liabilities recorded upon adoption will be based on the present value of future minimum lease payments, the amount of which will depend on the population of leases in effect at the date of adoption. In addition, 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, which is estimated to be approximately $50 million after tax, will be recognized immediately as a cumulative-effect adjustment to equity. For additional discussion of the sale-leaseback transaction, see Note 8 "Premises, Furniture, and Equipment" to the Consolidated Financial Statements in the Company's 2017 10-K. Management is completing its evaluation of the guidance and does not expect the adoption of the guidance will materially impact the Company's results of operations or liquidity, but anticipates a material increase in assets, liabilities, and equity.
Measurement of Credit Losses on Financial Instruments: In June of 2016, the FASB issued guidance 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 guidance 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.
Premium Amortization on Purchased Callable Debt Securities: In March of 2017, the FASB issued guidance 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. 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.
Improvements to Nonemployee Share-based Payment Accounting: In June of 2018, the FASB issued guidance 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. 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 Fair Value Measurement: In August of 2018, the FASB issued guidance that eliminates, modifies, and adds to certain fair value measurement disclosure requirements associated with the three-tiered fair value

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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 guidance 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.
Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract: In August of 2018, the FASB issued guidance 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. 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.
3. ACQUISITIONS
Northern States Financial Corporation
On June 6, 2018, the Company entered into a definitive agreement to acquire Northern States Financial Corporation, ("Northern States"), the holding company for NorStates Bank, based in Waukegan, Illinois. On October 12, 2018, the Company completed its acquisition of Northern States. At closing, the Company acquired approximately $550 million in total assets, $465 million in deposits, and $305 million in loans. Under the terms of the merger agreement, the final exchange ratio was determined to be 0.0363 shares of Company common stock for each outstanding share of Northern States common stock, excluding shares held in treasury or otherwise owned by the Company or Northern States. The merger consideration totaled approximately $83 million and resulted in the Company issuing approximately 3.3 million shares of Company common stock. The Company expects that NorStates Bank will be merged with and into First Midwest Bank, with associated systems conversions completed, in early December 2018.
Standard Bancshares, Inc.
On January 6, 2017, the Company completed its acquisition of Standard Bancshares, Inc. ("Standard"), the holding company for Standard Bank and Trust Company. Pursuant to the terms of the merger agreement, on January 6, 2017, each outstanding share of Standard common stock was canceled and converted into the right to receive 0.4350 of a share of Company common stock. Based on the closing price of shares of Company common stock of $25.34 on that date, as reported by NASDAQ, the value of the merger consideration per share of Standard common stock was $11.02. Each outstanding Standard stock settled right was redeemed for cash, and each outstanding Standard stock option and each share of Standard phantom stock were canceled and terminated in exchange for the right to receive cash, in each case, pursuant to the terms of the merger agreement. This resulted in an overall transaction value of approximately $580.7 million, which consisted of 21,057,085 shares of Company common stock and $47.1 million in cash. Goodwill of $345.3 million associated with the acquisition was recorded by the Company. All operating systems were converted during the first quarter of 2017. During 2017, the Company finalized the fair value adjustments associated with the Standard transaction.
Premier Asset Management LLC
On February 28, 2017, the Company completed its acquisition of Premier Asset Management LLC ("Premier"), a registered investment advisor based in Chicago, Illinois. At the close of the acquisition, the Company acquired approximately $550.0 million of trust assets under management. During the first quarter of 2018, the Company finalized the fair value adjustments associated with the Premier transaction.

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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 2017 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, 2018
 
As of December 31, 2017
 
 
Amortized Cost
 
Gross Unrealized
 
Fair
 Value
 
Amortized Cost
 
Gross Unrealized
 
Fair
 Value
 
 
 
Gains
 
Losses
 
 
 
Gains
 
Losses
 
Securities Available-for-Sale
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. treasury securities
 
$
49,434

 
$

 
$
(325
)
 
$
49,109

 
$
46,529

 
$

 
$
(184
)
 
$
46,345

U.S. agency securities
 
143,765

 
6

 
(2,517
)
 
141,254

 
157,636

 
197

 
(986
)
 
156,847

Collateralized mortgage
  obligations ("CMOs")
 
1,304,611

 
103

 
(46,787
)
 
1,257,927

 
1,113,019

 
121

 
(17,954
)
 
1,095,186

Other mortgage-backed
  securities ("MBSs")
 
462,046

 
114

 
(16,495
)
 
445,665

 
373,676

 
201

 
(4,334
)
 
369,543

Municipal securities
 
228,048

 
118

 
(5,131
)
 
223,035

 
209,558

 
693

 
(1,260
)
 
208,991

Corporate debt securities
 
62,888

 
32

 
(500
)
 
62,420

 

 

 

 

Equity securities(1)
 

 

 

 

 
7,408

 
194

 
(305
)
 
7,297

Total securities
  available-for-sale
 
$
2,250,792

 
$
373

 
$
(71,755
)
 
$
2,179,410

 
$
1,907,826

 
$
1,406

 
$
(25,023
)
 
$
1,884,209

Securities Held-to-Maturity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Municipal securities
 
$
12,673

 
$

 
$
(2,158
)
 
$
10,515

 
$
13,760

 
$

 
$
(1,747
)
 
$
12,013

Equity Securities(1)
 
 
 
 
 
 
 
$
29,046

 
 
 
 
 
 
 
$

Trading Securities(1)
 
 
 
 
 
 
 
$

 
 
 
 
 
 
 
$
20,447

(1) 
As a result of accounting guidance adopted in the first quarter of 2018, equity securities are no longer presented within trading securities or securities available-for-sale and are now presented within equity securities in the Consolidated Statements of Financial Condition for the current period. For further discussion of this guidance, see Note 2, "Recent Accounting Pronouncements."

Remaining Contractual Maturity of Securities
(Dollar amounts in thousands)
 
 
As of September 30, 2018
 
 
Available-for-Sale
 
Held-to-Maturity
 
 
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
One year or less
 
$
113,814

 
$
111,859

 
$
1,631

 
$
1,353

After one year to five years
 
171,155

 
168,215

 
4,915

 
4,078

After five years to ten years
 
199,166

 
195,744

 
2,176

 
1,806

After ten years
 

 

 
3,951

 
3,278

Securities that do not have a single contractual maturity date
 
1,766,657

 
1,703,592

 

 

Total
 
$
2,250,792

 
$
2,179,410

 
$
12,673

 
$
10,515

The carrying value of securities available-for-sale that were pledged to secure deposits or for other purposes as permitted or required by law totaled $1.4 billion as of September 30, 2018 and $1.1 billion as of December 31, 2017. No securities held-to-maturity were pledged as of September 30, 2018 or December 31, 2017.

16




Securities Available-for-Sale Gains
(Dollar amounts in thousands)
 
 
Quarters Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
 
2018
 
2017
 
2018
 
2017
Gains on sales of securities:
 
 
 
 
 
 
 
 
Gross realized gains
 
$

 
$
3,197

 
$

 
$
3,481

Gross realized losses
 

 

 

 

Net realized gains on sales of securities
 

 
3,197

 

 
3,481

Non-cash impairment charges:
 
 
 
 
 
 
 
 
Other-than-temporary securities impairment ("OTTI")
 

 

 

 

Net realized gains
 
$

 
$
3,197

 
$

 
$
3,481

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.
There was no outstanding balance of OTTI previously recognized on securities available-for-sale as of either September 30, 2018 or December 31, 2017. During the quarters and nine months ended September 30, 2018 and 2017 no OTTI was recognized on securities available-for-sale.

17




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, 2018 and December 31, 2017.
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, 2018
 
 
 
 
 
 
 
 
 
 
 
 
Securities Available-for-Sale
 
 
 
 
 
 
 
 
 
 
 
 
U.S. treasury securities
 
24

 
$
38,623

 
$
307

 
$
10,486

 
$
18

 
$
49,109

 
$
325

U.S. agency securities
 
75

 
81,753

 
1,398

 
54,161

 
1,119

 
135,914

 
2,517

CMOs
 
260

 
610,183

 
15,445

 
602,362

 
31,342

 
1,212,545

 
46,787

MBSs
 
119

 
215,463

 
5,396

 
222,989

 
11,099

 
438,452

 
16,495

Municipal securities
 
501

 
140,916

 
2,762

 
55,975

 
2,369

 
196,891

 
5,131

Corporate debt securities
 
8

 
36,621

 
500

 

 

 
36,621

 
500

Total
 
987

 
$
1,123,559

 
$
25,808

 
$
945,973

 
$
45,947

 
$
2,069,532

 
$
71,755

Securities Held-to-Maturity
 
 
 
 
 
 
 
 
 
 
 
 
Municipal securities
 
8

 
$

 
$

 
$
10,515

 
$
2,158

 
$
10,515

 
$
2,158

As of December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Securities Available-for-Sale
 
 
 
 
 
 
 
 
 
 
 
 
U.S. treasury securities
 
20

 
$
19,918

 
$
87

 
$
26,427

 
$
97

 
$
46,345

 
$
184

U.S. agency securities
 
72

 
66,899

 
300

 
58,021

 
686

 
124,920

 
986

CMOs
 
211

 
365,131

 
3,265

 
633,227

 
14,689

 
998,358

 
17,954

MBSs
 
86

 
126,136

 
902

 
210,017

 
3,432

 
336,153

 
4,334

Municipal securities
 
265

 
35,500

 
479

 
81,360

 
781

 
116,860

 
1,260

Equity securities(1)
 
2

 
391

 
214

 
6,386

 
91

 
6,777

 
305

Total
 
656

 
$
613,975

 
$
5,247

 
$
1,015,438

 
$
19,776

 
$
1,629,413

 
$
25,023

Securities Held-to-Maturity
 
 
 
 
Municipal securities
 
8

 
$

 
$

 
$
12,013

 
$
1,747

 
$
12,013

 
$
1,747

(1) 
As a result of accounting guidance adopted in the first quarter of 2018, equity securities are no longer presented within securities available-for-sale and are now presented within equity securities in the Consolidated Statements of Financial Condition for the current period. For further discussion of this guidance, see Note 2, "Recent Accounting Pronouncements."
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, 2018 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.

18




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,
2018
 
December 31,
2017
Commercial and industrial
 
$
3,994,142

 
$
3,529,914

Agricultural
 
432,220

 
430,886

Commercial real estate:
 
 
 
 
Office, retail, and industrial
 
1,782,757

 
1,979,820

Multi-family
 
698,611

 
675,463

Construction
 
632,779

 
539,820

Other commercial real estate
 
1,348,831

 
1,358,515

Total commercial real estate
 
4,462,978

 
4,553,618

Total corporate loans
 
8,889,340

 
8,514,418

Home equity
 
853,887

 
827,055

1-4 family mortgages
 
888,797

 
774,357

Installment
 
418,524

 
321,982

Total consumer loans
 
2,161,208

 
1,923,394

Total loans
 
$
11,050,548

 
$
10,437,812

Deferred loan fees included in total loans
 
$
5,887

 
$
4,986

Overdrawn demand deposits included in total loans
 
8,239

 
8,587

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 2017 10-K.

19




Loan Sales
The following table presents loan sales for the quarters and nine months ended September 30, 2018 and 2017.
Loan Sales
(Dollar amounts in thousands)
 
 
Quarters Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
 
2018
 
2017
 
2018
 
2017
Corporate loan sales
 
 
 
 
 
 
 
 
Proceeds from sales
 
$
2,868

 
$
11,833

 
$
15,180

 
$
46,770

Less book value of loans sold
 
2,827

 
11,512

 
14,811

 
45,752

Net gains on corporate loan sales(1)
 
41

 
321

 
369

 
1,018

1-4 family mortgage loan sales
 
 
 
 
 
 
 
 
Proceeds from sales
 
$
62,576

 
$
73,889

 
$
193,476

 
$
190,544

Less book value of loans sold
 
61,276

 
72,149

 
189,370

 
186,208

Net gains on 1-4 family mortgage loan sales(2)
 
1,300

 
1,740

 
4,106

 
4,336

Total net gains on loan sales
 
$
1,341

 
$
2,061

 
$
4,475

 
$
5,354

(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 11, "Commitments, Guarantees, and Contingent Liabilities."
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 September 30, 2018 and December 31, 2017.
Acquired and Covered Loans(1) 
(Dollar amounts in thousands)
 
 
As of September 30, 2018
 
As of December 31, 2017
 
 
PCI
 
Non-PCI
 
Total
 
PCI
 
Non-PCI
 
Total
Acquired loans
 
$
98,923

 
$
1,121,092

 
$
1,220,015

 
$
130,694

 
$
1,512,664

 
$
1,643,358

Covered loans
 
6,021

 
7,632

 
13,653

 
6,759

 
11,789

 
18,548

Total acquired and covered loans
 
$
104,944

 
$
1,128,724

 
$
1,233,668

 
$
137,453

 
$
1,524,453

 
$
1,661,906

(1) 
Included in loans in the Consolidated Statements of Condition.
The outstanding balance of PCI loans was $157.2 million and $210.7 million as of September 30, 2018 and December 31, 2017, respectively.
Acquired non-PCI loans that are renewed are no longer classified as acquired loans. These loans totaled $426.4 million and $366.0 million as of September 30, 2018 and December 31, 2017, respectively.
In connection with the FDIC Agreements, the Company recorded an indemnification asset. To maintain eligibility for the loss share reimbursement, the Company is required to follow certain servicing procedures as specified in the FDIC Agreements. The Company was in compliance with those requirements as of September 30, 2018 and December 31, 2017.

20




Rollforwards of the carrying value of the FDIC indemnification asset for the quarters and nine months ended September 30, 2018 and 2017 are presented in the following table.
Changes in the FDIC Indemnification Asset
(Dollar amounts in thousands)
 
 
Quarters Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
 
2018
 
2017
 
2018
 
2017
Beginning balance
 
$
2,710

 
$
3,918

 
$
3,314

 
$
4,522

Amortization
 
(302
)
 
(302
)
 
(906
)
 
(906
)
Change in expected reimbursements from the FDIC for
  changes in expected credit losses
 
(336
)
 
(123
)
 
(161
)
 
(653
)
Net payments to the FDIC
 
334

 
123

 
159

 
653

Ending balance
 
$
2,406

 
$
3,616

 
$
2,406

 
$
3,616

Changes in the accretable yield for acquired and covered PCI loans were as follows.
Changes in Accretable Yield
(Dollar amounts in thousands)
 
 
Quarters Ended 
 September 30,