Associated Banc-Corp - 10-Q quarterly report FY2017 Q3

Associated Banc-Corp - 10-Q quarterly report FY2017 Q3

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended September 30, 2017



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from to

Commission file number: 001-31343

Associated Banc-Corp

(Exact name of registrant as specified in its charter)



Wisconsin		39-1098068
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

433 Main Street Green Bay, Wisconsin		54301
(Address of principal executive offices)		(Zip Code)

(920) 491-7500

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

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 þ No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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 þ No ¨

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



Large accelerated filer þ	Accelerated filer ¨

Non-accelerated filer ¨	Smaller reporting company ¨
(Do not check if a smaller reporting company)

Emerging growth company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No þ

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. ¨

APPLICABLE ONLY TO CORPORATE ISSUERS:

The number of shares outstanding of registrant’s common stock, par value $0.01 per share, at October 25, 2017, was 151,164,803.

ASSOCIATED BANC-CORP

TABLE OF CONTENTS



PART I - FINANCIAL INFORMATION
ITEM 1.	Financial Statements:

ASSOCIATED BANC-CORP

Consolidated Balance Sheets



	September 30, 2017			December 31, 2016
	(Unaudited)			(Audited)
	(In Thousands, except share and per share data)
Assets
Cash and due from banks	$	354,331		$	446,558
Interest-bearing deposits in other financial institutions	109,596			149,175
Federal funds sold and securities purchased under agreements to resell	27,700			46,500
Investment securities held to maturity, at amortized cost	2,233,579			1,273,536
Investment securities available for sale, at fair value	3,801,699			4,680,226
Federal Home Loan Bank and Federal Reserve Bank stocks, at cost	172,446			140,001
Residential loans held for sale⁽¹⁾	113,064			108,010
Commercial loans held for sale	9,718			12,474
Loans	20,931,460			20,054,716
Allowance for loan losses	(276,551		)	(278,335		)
Loans, net	20,654,909			19,776,381
Premises and equipment, net	330,065			330,315
Bank and corporate owned life insurance	589,093			585,290
Goodwill	972,006			971,951
Mortgage servicing rights, net	58,377			61,476
Other intangible assets, net	14,080			15,377
Trading assets	48,429			52,398
Other assets	575,455			489,647
Total assets	$	30,064,547		$	29,139,315
Liabilities and Stockholders' Equity
Noninterest-bearing demand deposits	$	5,177,734		$	5,392,208
Interest-bearing deposits	17,155,717			16,496,240
Total deposits	22,333,451			21,888,448
Federal funds purchased and securities sold under agreements to repurchase	476,550			508,347
Other short-term funding	588,067			583,688
Long-term funding	3,147,285			2,761,795
Trading liabilities	46,812			51,103
Accrued expenses and other liabilities	268,781			254,622
Total liabilities	26,860,946			26,048,003
Stockholders’ Equity
Preferred equity	159,929			159,929
Common equity
Common stock	1,615			1,630
Surplus	1,442,328			1,459,498
Retained earnings	1,792,184			1,695,764
Accumulated other comprehensive income (loss)	(54,288		)	(54,679		)
Treasury stock, at cost	(138,167		)	(170,830		)
Total common equity	3,043,672			2,931,383
Total stockholders’ equity	3,203,601			3,091,312
Total liabilities and stockholders’ equity	$	30,064,547		$	29,139,315
Preferred shares issued	165,000			165,000
Preferred shares authorized (par value $1.00 per share)	750,000			750,000
Common shares issued	161,460,708			163,030,209
Common shares authorized (par value $0.01 per share)	250,000,000			250,000,000
Treasury shares of common stock	9,143,102			10,909,362


(1)	Effective January 1, 2017, residential loans originated for sale are accounted for under the fair value option. Prior periods have not been restated. For more information on this accounting policy change, please refer to Note 3 to Notes to the Consolidated Financial Statements.

See accompanying notes to consolidated financial statements.

Item 1. Financial Statements Continued:

ASSOCIATED BANC-CORP

Consolidated Statements of Income (Unaudited)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
	(In Thousands, except per share data)
Interest Income
Interest and fees on loans	$	196,972		$	167,350		$	554,867		$	490,065
Interest and dividends on investment securities:
Taxable	24,162			22,948			71,295			72,734
Tax-exempt	8,268			8,141			24,540			23,865
Other interest	2,492			1,064			5,581			3,449
Total interest income	231,894			199,503			656,283			590,113
Interest Expense
Interest on deposits	27,778			13,118			65,882			36,562
Interest on Federal funds purchased and securities sold under agreements to repurchase	768			326			2,107			1,000
Interest on other short-term funding	1,039			296			3,946			1,656
Interest on long-term funding	12,187			7,229			30,133			23,657
Total interest expense	41,772			20,969			102,068			62,875
Net Interest Income	190,122			178,534			554,215			527,238
Provision for credit losses	5,000			21,000			26,000			55,000
Net interest income after provision for credit losses	185,122			157,534			528,215			472,238
Noninterest Income
Trust service fees	12,785			11,700			37,066			34,656
Service charges on deposit accounts	16,268			17,445			48,654			50,162
Card-based and other nondeposit fees	12,619			12,777			38,848			37,485
Insurance commissions	19,815			19,431			62,288			62,818
Brokerage and annuity commissions	4,392			4,155			13,071			12,047
Mortgage banking, net	6,585			18,291			16,191			26,562
Capital market fees, net	4,610			7,012			12,535			14,343
Bank and corporate owned life insurance income	6,580			3,290			13,094			11,033
Asset gains (losses), net	(16		)	(1,034		)	(716		)	(853		)
Investment securities gains (losses), net	3			(13		)	359			6,201
Other	2,254			2,180			6,746			6,140
Total noninterest income	85,895			95,234			248,136			260,594
Noninterest Expense
Personnel expense	105,852			103,819			314,954			307,346
Occupancy	12,294			15,362			40,345			42,379
Equipment	5,232			5,319			15,951			16,161
Technology	15,233			14,173			45,126			42,887
Business development and advertising	7,764			5,251			20,751			20,053
Other intangible amortization	450			525			1,459			1,568
Loan expense	3,330			3,535			8,924			10,198
Legal and professional fees	6,248			4,804			16,125			14,685
Foreclosure / OREO expense, net	906			960			3,593			4,167
FDIC expense	7,800			9,000			23,800			25,500
Other	12,318			12,566			36,406			38,701
Total noninterest expense	177,427			175,314			527,434			523,645
Income before income taxes	93,590			77,454			248,917			209,187
Income tax expense	28,589			23,638			69,663			63,746
Net Income	65,001			53,816			179,254			145,441
Preferred stock dividends	2,339			2,188			7,008			6,555
Net income available to common equity	$	62,662		$	51,628		$	172,246		$	138,886
Earnings per common share:
Basic	$	0.41		$	0.34		$	1.13		$	0.92
Diluted	$	0.41		$	0.34		$	1.11		$	0.92
Average common shares outstanding:
Basic	150,565			148,708			150,983			148,607
Diluted	152,968			149,973			153,782			149,645

See accompanying notes to consolidated financial statements.

Item 1. Financial Statements Continued:

ASSOCIATED BANC-CORP

Consolidated Statements of Comprehensive Income (Unaudited)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
	($ in Thousands)
Net income	$	65,001		$	53,816		$	179,254		$	145,441
Other comprehensive income, net of tax
Investment securities available for sale
Net unrealized gains (losses)	(1,986		)	(22,894		)	16,384			59,849
Net unrealized gain (loss) on available for sale securities transferred to held to maturity securities	—			—			(14,738		)	—
Amortization of net unrealized gain (loss) on available for sale securities transferred to held to maturity securities	76			(1,441		)	(2,499		)	(4,465		)
Reclassification adjustment for net gains (losses) realized in net income⁽¹⁾	—			13			—			(6,201		)
Income tax (expense) benefit	734			9,280			328			(18,768		)
Other comprehensive income (loss) on investment securities available for sale	(1,176		)	(15,042		)	(525		)	30,415
Defined benefit pension and postretirement obligations
Amortization of prior service cost	(38		)	(80		)	(113		)	(55		)
Amortization of actuarial loss (gains)	621			621			1,596			1,586
Income tax (expense) benefit	(225		)	(206		)	(567		)	(584		)
Other comprehensive income (loss) on pension and postretirement obligations	358			335			916			947
Total other comprehensive income (loss)	(818		)	(14,707		)	391			31,362
Comprehensive income	$	64,183		$	39,109		$	179,645		$	176,803


(1)	Includes only available for sale securities.

See accompanying notes to consolidated financial statements.

Item 1. Financial Statements Continued:

ASSOCIATED BANC-CORP

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)



	Preferred Equity			Common Stock			Surplus			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total
	(In Thousands, except per share data)
Balance, December 31, 2015	$	121,379		$	1,642		$	1,458,522		$	1,593,239		$	(32,616	)	$	(204,920	)	$	2,937,246
Comprehensive income
Net income	—			—			—			145,441			—			—			145,441
Other comprehensive income	—			—			—			—			31,362			—			31,362
Comprehensive income																			176,803
Common stock issued
Stock-based compensation plans, net	—			—			1,785			(18,070		)	—			24,034			7,749
Purchase of common stock returned to authorized but unissued	—			(12		)	(19,995		)	—			—			—			(20,007		)
Purchase of treasury stock	—			—			—			—			—			(4,243		)	(4,243		)
Cash dividends
Common stock, $0.33 per share	—			—			—			(49,642		)	—			—			(49,642		)
Preferred stock	—			—			—			(6,555		)	—			—			(6,555		)
Issuance of preferred stock	97,066			—			—			—			—			—			97,066
Redemption of preferred stock	(57,338		)	—			—			(1,565		)	—			—			(58,903		)
Purchase of preferred stock	(1,178		)	—			—			(70		)	—			—			(1,248		)
Stock-based compensation expense, net	—			—			18,047			—			—			—			18,047
Other	—			—			802			—			—			—			802
Balance, September 30, 2016	$	159,929		$	1,630		$	1,459,161		$	1,662,778		$	(1,254	)	$	(185,129	)	$	3,097,115

Balance, December 31, 2016	$	159,929		$	1,630		$	1,459,498		$	1,695,764		$	(54,679	)	$	(170,830	)	$	3,091,312
Comprehensive income
Net income	—			—			—			179,254			—			—			179,254
Other comprehensive income	—			—			—			—			391			—			391
Comprehensive income																			179,645
Common stock issued
Stock-based compensation plans, net	—			—			1,952			(20,768		)	—			41,276			22,460
Purchase of common stock returned to authorized but unissued				(15		)	(37,016		)	—			—			—			(37,031		)
Purchase of treasury stock	—			—			—			—			—			(8,613		)	(8,613		)
Cash dividends
Common stock, $0.36 per share	—			—			—			(55,058		)	—			—			(55,058		)
Preferred stock	—			—			—			(7,008		)	—			—			(7,008		)
Stock-based compensation expense, net	—			—			16,860			—			—			—			16,860
Other	—			—			1,034			—			—			—			1,034
Balance, September 30, 2017	$	159,929		$	1,615		$	1,442,328		$	1,792,184		$	(54,288	)	$	(138,167	)	$	3,203,601

See accompanying notes to consolidated financial statements.

Item 1. Financial Statements Continued:

ASSOCIATED BANC-CORP

Consolidated Statements of Cash Flows (Unaudited)



	Nine Months Ended September 30,
	2017			2016
	($ in Thousands)
Cash Flow From Operating Activities
Net income	$	179,254		$	145,441
Adjustments to reconcile net income to net cash provided by operating activities
Provision for credit losses	26,000			55,000
Depreciation and amortization	35,054			34,121
Addition to valuation allowance on mortgage servicing rights, net	286			2,486
Amortization of mortgage servicing rights	7,635			9,142
Amortization of other intangible assets	1,459			1,568
Amortization and accretion on earning assets, funding, and other, net	27,230			34,077
Net amortization of tax credit investments	14,685			4,437
Gain on sales of investment securities, net	(359		)	(6,201		)
Asset (gains) losses, net	716			853
(Gain) loss on mortgage banking activities, net	(3,762		)	(21,741		)
Mortgage loans originated and acquired for sale	(466,135		)	(983,930		)
Proceeds from sales of mortgage loans held for sale	551,697			1,147,278
Deferred pension cost - contributions	(6,242		)	—
(Increase) decrease in interest receivable	(9,765		)	(5,809		)
Increase (decrease) in interest payable	3,410			(5,994		)
Net change in other assets and other liabilities	(44,882		)	5,451
Net cash provided by operating activities	316,281			416,179
Cash Flow From Investing Activities
Net increase in loans	(991,334		)	(1,461,884		)
Purchases of
Available for sale securities	(701,080		)	(849,466		)
Held to maturity securities	(121,596		)	(151,556		)
Federal Home Loan Bank and Federal Reserve Bank stocks	(195,356		)	(72,975		)
Premises, equipment, and software, net of disposals	(32,925		)	(90,691		)
Proceeds from
Sales of available for sale securities	—			359,591
Sales of held to maturity securities	16,059			—
Sale of Federal Home Loan Bank and Federal Reserve Bank stocks	162,911			80,000
Prepayments, calls, and maturities of available for sale investment securities	551,962			651,403
Prepayments, calls, and maturities of held to maturity investment securities	151,565			55,579
Sales, prepayments, calls, and maturities of other assets	10,833			19,351
Net change in tax credit investments	(35,027		)	(13,138		)
Net cash paid in acquisition	(217		)	(685		)
Net cash used in investing activities	(1,184,205		)	(1,474,471		)
Cash Flow From Financing Activities
Net increase (decrease) in deposits	445,003			740,047
Net increase (decrease) in short-term funding	(27,418		)	405,677
Repayment of long-term funding	(115,017		)	(1,180,027		)
Proceeds from issuance of long-term funding	500,000			1,265,000
Proceeds from issuance of preferred shares	—			97,066
Proceeds from issuance of common stock for stock-based compensation plans	22,460			7,749
Redemption of preferred shares	—			(58,903		)
Purchase of preferred stock	—			(1,248		)
Purchase of common stock returned to authorized but unissued	(37,031		)	(20,007		)
Purchase of treasury stock for tax withholding	(8,613		)	(4,243		)
Cash dividends on common stock	(55,058		)	(49,642		)
Cash dividends on preferred stock	(7,008		)	(6,555		)
Net cash provided by financing activities	717,318			1,194,914
Net increase (decrease) in cash and cash equivalents	(150,606		)	136,622
Cash and cash equivalents at beginning of period	642,233			473,685
Cash and cash equivalents at end of period	$	491,627		$	610,307
Supplemental disclosures of cash flow information
Cash paid for interest	$	98,151		$	68,371
Cash paid for income taxes	61,959			53,126
Loans and bank premises transferred to other real estate owned	5,872			8,834
Capitalized mortgage servicing rights	4,822			8,701
Loans transferred into held for sale from portfolio, net	75,289			256,188
Acquisition
Fair value of assets acquired, including cash and cash equivalents	—			522
Fair value ascribed to goodwill and intangible assets	217			4,119
Fair value of liabilities assumed	—			1,423

See accompanying notes to consolidated financial statements.

Item 1. Financial Statements Continued:

ASSOCIATED BANC-CORP

Notes to Consolidated Financial Statements

These interim consolidated financial statements have been prepared according to the rules and regulations of the Securities and Exchange Commission and, therefore, certain information and footnote disclosures normally presented in accordance with U.S. generally accepted accounting principles have been omitted or abbreviated. The information contained in the consolidated financial statements and footnotes in the Corporation's 2016 Annual Report on Form 10-K, should be referred to in connection with the reading of these unaudited interim financial statements.

Note 1 Basis of Presentation

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the financial position, results of operations and comprehensive income, changes in stockholders’ equity, and cash flows of Associated Banc-Corp (individually referred to herein as the “Parent Company,” and together with all of its subsidiaries and affiliates, collectively referred to herein as the “Corporation”) for the periods presented, and all such adjustments are of a normal recurring nature. The consolidated financial statements include the accounts of all subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year.

Note 2 Acquisitions

Completed Acquisitions

During the first quarter of 2017, the Corporation completed a small insurance acquisition to complement its existing insurance and benefits related products and services provided by Associated Benefits and Risk Consulting ("ABRC"). The Corporation recorded goodwill of $55,000 and other intangibles of $162,000 related to the insurance acquisition.

During the first quarter of 2016, the Corporation completed two small insurance acquisitions to complement its existing insurance and benefits related products and services provided by ABRC. The Corporation recorded goodwill of $3 million and other intangibles of $1 million related to these insurance acquisitions.

See Note 8 for additional information on goodwill and other intangible assets.

Acquisitions Update

On October 2, 2017, the Corporation completed its previously announced acquisition of Whitnell & Co., a wealth management family services firm based in Oak Brook, IL.

On July 20, 2017, the Corporation and Bank Mutual Corporation ("Bank Mutual") jointly announced that they had entered into an Agreement and Plan of Merger, dated as of July 20, 2017 (the "Merger Agreement") under which Bank Mutual will merge with and into the Corporation. Under the terms of the Merger Agreement, Bank Mutual's shareholders will receive 0.422 shares of Corporation common stock for each share of Bank Mutual's common stock. Subject to customary closing conditions, including regulatory approvals and approval by the Bank Mutual shareholders, the transaction is expected to close in the first quarter of 2018.

Note 3 Summary of Significant Accounting Policies

Accounting Policy Elections

Effective January 1, 2017, residential mortgage loans that are classified as held for sale are accounted using the fair value option method of accounting. The Corporation has elected the fair value option to mitigate accounting mismatches between held for sale loan valuations and corresponding derivative commitments. Prior to January 1, 2017, residential mortgage loans that were classified as held for sale were accounted for at the lower of cost or market method (“LOCOM”) of accounting.

New Accounting Pronouncements Adopted



Standard	Description	Date of adoption	Effect on financial statements
ASU 2017-08 Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities	The FASB issued amendments to require that certain purchased callable debt securities held at a premium be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount, which continue to be amortized to maturity.	1st Quarter 2017	The Corporation early adopted the accounting standard with no material impact on results of operations, financial position, or liquidity.
ASU 2017-03 Accounting Changes and Error Corrections (Topic 250) and Investments - Equity Method and Joint Ventures (Topic 323)	The standard states that for ASUs which have not been adopted yet, the registrant needs to determine the potential effects (if material) of those ASUs on the financial statements when adopted and include the appropriate disclosures in the financial statements. If the impact of adoption is unknown or cannot be estimated, the registrant should include a statement noting this and consider adding qualitative disclosures to the financial statements to assist the reader in evaluating the impact of the ASUs, when adopted, on the financial statements.	1st Quarter 2017	No material impact on results of operations, financial position, or liquidity.
ASU 2016-17 Consolidation (Topic 810): Interests Held through Related Parties That Are Under Common Control	The FASB issued an amendment to address how a reporting entity that is a single decision maker of a variable interest entity treats indirect interests in the entity held through related parties that are under common control with the reporting entity.	1st Quarter 2017	No material impact on results of operations, financial position, or liquidity.
ASU 2016-09 Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting	The FASB issued an amendment involving several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Entities should apply the amendment related to the timing of when excess tax benefits are recognized, minimum statutory withholding requirements, forfeitures, and intrinsic value using a modified retrospective transition method by means of a cumulative-effect adjustment to equity as of the beginning of the period in which the guidance is adopted. Entities should apply the amendment related to the presentation of employee taxes paid on the statement of cash flows when an employer withholds shares to meet the minimum statutory withholding requirement retrospectively. The amendment requiring recognition of excess tax benefits and tax deficiencies in the income statement and the practical expedient for estimating expected term should be applied prospectively.	4th Quarter 2016	The Corporation early adopted the accounting standard and recognized a $1 million reduction in income taxes for the excess tax benefits on stock-based compensation. The remaining provisions of this accounting standard did not have a material impact on the results of operations, financial position, or liquidity.
ASU 2016-07 Investments - Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting	The FASB issued an amendment to eliminate the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. The amendment requires that the equity method investor add the cost of acquiring the additional interests in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. Therefore, upon qualifying for the equity method of accounting, no retroactive adjustment of the investment is required. The amendment requires that an entity that has an available-for-sale equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method. Entities should apply the amendment prospectively to increases in the level of ownership interest or degree of influence that result in the adoption of the equity method.	1st Quarter 2017	No material impact on results of operations, financial position, or liquidity.

Note 4 Earnings Per Common Share

Earnings per common share are calculated utilizing the two-class method. Basic earnings per common share are calculated by dividing the sum of distributed earnings to common shareholders and undistributed earnings allocated to common shareholders by the weighted average number of common shares outstanding. Diluted earnings per common share are calculated by dividing the sum of distributed earnings to common shareholders and undistributed earnings allocated to common shareholders by the weighted average number of common shares outstanding adjusted for the dilutive effect of common stock awards (outstanding stock options and unvested restricted stock awards) and common stock warrants. Presented below are the calculations for basic and diluted earnings per common share.



	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2017			2016			2017			2016
	(In thousands, except per share data)
Net income	$	65,001		$	53,816		$	179,254		$	145,441
Preferred stock dividends	(2,339		)	(2,188		)	(7,008		)	(6,555		)
Net income available to common equity	$	62,662		$	51,628		$	172,246		$	138,886
Common shareholder dividends	(18,149		)	(16,431		)	(54,726		)	(49,077		)
Unvested share-based payment awards	(105		)	(177		)	(332		)	(565		)
Undistributed earnings	$	44,408		$	35,020		$	117,188		$	89,244
Undistributed earnings allocated to common shareholders	44,150			34,645			116,418			88,294
Undistributed earnings allocated to unvested share-based payment awards	258			375			770			950
Undistributed earnings	$	44,408		$	35,020		$	117,188		$	89,244
Basic
Distributed earnings to common shareholders	$	18,149		$	16,431		$	54,726		$	49,077
Undistributed earnings allocated to common shareholders	44,150			34,645			116,418			88,294
Total common shareholders earnings, basic	$	62,299		$	51,076		$	171,144		$	137,371
Diluted
Distributed earnings to common shareholders	$	18,149		$	16,431		$	54,726		$	49,077
Undistributed earnings allocated to common shareholders	44,150			34,645			116,418			88,294
Total common shareholders earnings, diluted	$	62,299		$	51,076		$	171,144		$	137,371
Weighted average common shares outstanding	150,565			148,708			150,983			148,607
Effect of dilutive common stock awards	1,815			1,265			2,081			1,038
Effect of dilutive common stock warrants	588			—			718			—
Diluted weighted average common shares outstanding	152,968			149,973			153,782			149,645
Basic earnings per common share	$	0.41		$	0.34		$	1.13		$	0.92
Diluted earnings per common share	$	0.41		$	0.34		$	1.11		$	0.92

Anti-dilutive common stock options of approximately 1 million and 4 million for the three months ended September 30, 2017 and 2016, respectively, and approximately 1 million and 4 million for the nine months ended September 30, 2017 and 2016, respectively, were excluded from the earnings per common share calculation. Warrants to purchase approximately 4 million shares were outstanding for the three and nine months ended September 30, 2016, but excluded from the calculation of diluted earnings per common shares as the effect would have been anti-dilutive.

Note 5 Stock-Based Compensation

The fair value of stock options granted is estimated on the date of grant using a Black-Scholes option pricing model, while the fair value of restricted stock awards is their fair market value on the date of grant. The fair values of stock options and restricted stock awards are amortized as compensation expense on a straight-line basis over the vesting period of the grants. For retirement eligible colleagues, expenses related to stock options and restricted stock awards are fully recognized on the date the colleague meets the definition of normal or early retirement. Compensation expense recognized is included in personnel expense in the consolidated statements of income.

Assumptions are used in estimating the fair value of stock options granted. The weighted average expected life of the stock option represents the period of time that stock options are expected to be outstanding and is estimated using historical data of stock option exercises and forfeitures. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. The expected volatility is based on the implied volatility of the Corporation’s stock.

The following assumptions were used in estimating the fair value for options granted in the first nine months of 2017 and full year 2016.



	2017		2016
Dividend yield	2.00	%	2.50	%
Risk-free interest rate	2.00	%	2.00	%
Weighted average expected volatility	25.00	%	25.00	%
Weighted average expected life	5.5 years		5.5 years
Weighted average per share fair value of options	$5.30		$3.36

A summary of the Corporation’s stock option activity for the nine months ended September 30, 2017 is presented below.



Stock Options	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value^(a)
Outstanding at December 31, 2016	6,357,843		$	17.67	6.10	$	47,902
Granted	799,558		25.61
Exercised	(1,291,244	)	16.32
Forfeited or expired	(506,395	)	31.90
Outstanding at September 30, 2017	5,359,762		$	18.07	6.55	$	34,334
Options Exercisable at September 30, 2017	3,072,811		$	16.54	5.25	$	23,911


(a)	$ in Thousands

Intrinsic value represents the amount by which the fair market value of the underlying stock exceeds the exercise price of the stock option. For the nine months ended September 30, 2017, the intrinsic value of stock options exercised was approximately $12 million. For the nine months ended September 30, 2016, the intrinsic value of the stock options exercised was $2 million. The total fair value of stock options vested was $4 million and $3 million for the nine months ended September 30, 2017 and September 30, 2016, respectively. The Corporation recognized compensation expense for the vesting of stock options of $3 million for both the nine months ended September 30, 2017 and September 30, 2016. Included in compensation expense for 2017 was approximately $570,000 of expense for the accelerated vesting of stock options granted to retirement eligible colleagues. At September 30, 2017, the Corporation had approximately $5 million of unrecognized compensation expense related to stock options that is expected to be recognized over the remaining requisite service periods that extend predominantly through first quarter 2021.

The following table summarizes information about the Corporation’s restricted stock activity for the nine months ended September 30, 2017.



Restricted Stock	Shares		Weighted Average Grant Date Fair Value
Outstanding at December 31, 2016	2,377,380		$	17.40
Granted	748,024		25.55
Vested	(872,020	)	17.92
Forfeited	(101,703	)	20.02
Outstanding at September 30, 2017	2,151,681		$	19.94

The Corporation amortizes the expense related to restricted stock awards as compensation expense over the vesting period specified in the grant's award agreement. Performance-based restricted stock awards granted during 2016 and 2017 will vest ratably over a three year period, while service-based restricted stock awards granted during 2016 and 2017 will vest ratably over a four year period. Expense for restricted stock awards of approximately $14 million was recorded for the nine months ended September 30, 2017 and approximately $15 million for the nine months ended September 30, 2016. Included in compensation expense for 2017 was approximately $2 million of expense for the accelerated vesting of restricted stock awards granted to retirement eligible colleagues. The Corporation had $22 million of unrecognized compensation costs related to restricted stock awards at September 30, 2017, that is expected to be recognized over the remaining requisite service periods that extend predominantly through first quarter 2021.

The Corporation has the ability to issue shares from treasury or new shares upon the exercise of stock options or the granting of restricted stock awards. The Board of Directors has authorized management to repurchase shares of the Corporation’s common stock in the market, to be made available for issuance in connection with the Corporation’s employee incentive plans and for other corporate purposes. The repurchase of shares will be based on market and investment opportunities, capital levels, growth prospects,

and regulatory constraints. Such repurchases may occur from time to time in open market purchases, block transactions, private transactions, accelerated share repurchase programs, or similar facilities.

Note 6 Investment Securities

Investment securities are generally classified as available for sale or held to maturity at the time of purchase. The majority of the Corporation's investment securities are mortgage-related securities issued by the Government National Mortgage Association (“GNMA”) or government-sponsored enterprises ("GSE") such as the Federal National Mortgage Association (“FNMA”) and the Federal Home Loan Mortgage Corporation (“FHLMC”). The amortized cost and fair values of securities available for sale and held to maturity were as follows.



September 30, 2017	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value


	($ in Thousands)
Investment securities available for sale
U. S. Treasury securities	$	1,003	$	—	$	(2	)	$	1,001
Residential mortgage-related securities
FNMA / FHLMC	494,041		12,780		(1,560		)	505,261
GNMA	1,681,380		2,504		(16,048		)	1,667,836
Private-label	1,083		—		(11		)	1,072
GNMA commercial mortgage-related securities	1,539,169		73		(26,165		)	1,513,077
Asset backed securities	108,590		63		(25		)	108,628
Other securities (debt and equity)	4,718		132		(26		)	4,824
Total investment securities available for sale	$	3,829,984	$	15,552	$	(43,837	)	$	3,801,699
Investment securities held to maturity
Obligations of state and political subdivisions (municipal securities)	$	1,192,290	$	14,525	$	(3,858	)	$	1,202,957
Residential mortgage-related securities
FNMA / FHLMC	42,386		464		(404		)	42,446
GNMA	444,196		3,712		(2,615		)	445,293
GNMA commercial mortgage-related securities	554,707		10,250		(11,808		)	553,149
Total investment securities held to maturity	$	2,233,579	$	28,951	$	(18,685	)	$	2,243,845



December 31, 2016	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value


	($ in Thousands)
Investment securities available for sale
U. S. Treasury securities	$	1,000	$	—	$	—		$	1,000
Residential mortgage-related securities
FNMA / FHLMC	625,234		17,298		(2,602		)	639,930
GNMA	2,028,301		1,372		(25,198		)	2,004,475
Private-label	1,134		1		(14		)	1,121
GNMA commercial mortgage-related securities	2,064,508		356		(35,966		)	2,028,898
Other securities (debt and equity)	4,718		105		(21		)	4,802
Total investment securities available for sale	$	4,724,895	$	19,132	$	(63,801	)	$	4,680,226
Investment securities held to maturity
Obligations of state and political subdivisions (municipal securities)	$	1,145,843	$	3,868	$	(12,036	)	$	1,137,675
Residential mortgage-related securities
FNMA / FHLMC	37,697		439		(693		)	37,443
GNMA	89,996		216		(656		)	89,556
Total investment securities held to maturity	$	1,273,536	$	4,523	$	(13,385	)	$	1,264,674

The amortized cost and fair values of investment securities available for sale and held to maturity at September 30, 2017, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.



	Available for Sale					Held to Maturity
	Amortized Cost		Fair Value			Amortized Cost		Fair Value
	($ in Thousands)
Due in one year or less	$	1,000	$	1,000		$	54,259	$	48,123
Due after one year through five years	4,703		4,675			222,037		227,978
Due after five years through ten years	—		—			281,559		284,789
Due after ten years	—		—			634,435		642,067
Total debt securities	5,703		5,675			1,192,290		1,202,957
Residential mortgage-related securities
FNMA / FHLMC	494,041		505,261			42,386		42,446
GNMA	1,681,380		1,667,836			444,196		445,293
Private-label	1,083		1,072			—		—
GNMA commercial mortgage-related securities	1,539,169		1,513,077			554,707		553,149
Asset backed securities	108,590		108,628			—		—
Equity securities	18		150			—		—
Total investment securities	$	3,829,984	$	3,801,699		$	2,233,579	$	2,243,845
Ratio of Fair Value to Amortized Cost			99.3		%			100.5		%

During the nine months ended September 30, 2017, the Corporation reclassified approximately $1 billion of GNMA residential mortgage-related securities and GNMA commercial mortgage-related securities from available for sale to held to maturity. The GNMA residential and commercial mortgage-related securities are principally securities with a CRA component in the underlying collateral. The reclassification of these investment securities was accounted for at fair value. Management elected to transfer these investment securities as the Corporation has the positive intent and ability to hold these investment securities to maturity.

In the third quarter of 2017, the Corporation purchased approximately $109 million of asset backed securities collateralized with government guaranteed student loans.

The proceeds from the sale of investment securities for the first nine months ended September 30, 2017 and 2016 are shown below.



	Nine Months Ended September 30,
	2017			2016
	($ in Thousands)
Gross gains on available for sale securities	$	—		$	6,403
Gross gains on held to maturity securities	364			—
Total gains	364			6,403
Gross losses on available for sale securities	—			(202		)
Gross losses on held to maturity securities	(5		)	—
Total losses	(5		)	(202		)
Investment securities gains, net	$	359		$	6,201
Proceeds from sales of investment securities	$	16,059		$	359,591

During the first nine months of 2017, the Corporation sold approximately $16 million of municipal securities classified as held to maturity due to significant credit concerns and negative actions taken by credit rating agencies, primarily as a result of budgetary pressures in the State of Illinois. These sales resulted in a net gain of approximately $359,000.

Investment securities with a carrying value of approximately $2.9 billion and $1.8 billion at September 30, 2017, and December 31, 2016, respectively, were pledged to secure certain deposits or for other purposes as required or permitted by law.

The following represents gross unrealized losses and the related fair value of investment securities available for sale and held to maturity, aggregated by investment category and length of time individual securities have been in a continuous unrealized loss position, at September 30, 2017.



	Less than 12 months						12 months or more						Total
September 30, 2017	Number of Securities	Unrealized Losses			Fair Value		Number of Securities	Unrealized Losses			Fair Value		Unrealized Losses			Fair Value
	($ in Thousands)
Investment securities available for sale
U.S. Treasury securities	1	$	(2	)	$	1,001	—	$	—		$	—	$	(2	)	$	1,001
Residential mortgage-related securities
FNMA / FHLMC	16	(1,254		)	177,782		2	(306		)	33,842		(1,560		)	211,624
GNMA	22	(9,455		)	687,814		14	(6,593		)	378,457		(16,048		)	1,066,271
Private-label	—	—			—		1	(11		)	1,072		(11		)	1,072
GNMA commercial mortgage-related securities	42	(4,962		)	551,833		56	(21,203		)	891,178		(26,165		)	1,443,011
Asset backed securities	5	(25		)	52,851		—	—			—		(25		)	52,851
Other securities (debt and equity)	1	(26		)	174		—	—			—		(26		)	174
Total	87	$	(15,724	)	$	1,471,455	73	$	(28,113	)	$	1,304,549	$	(43,837	)	$	2,776,004
Investment securities held to maturity
Obligations of state and political subdivisions (municipal securities)	195	$	(1,195	)	$	138,178	108	$	(2,663	)	$	94,432	$	(3,858	)	$	232,610
Residential mortgage-related securities
FNMA / FHLMC	12	(124		)	17,816		4	(280		)	9,910		(404		)	27,726
GNMA	29	(1,628		)	223,379		7	(987		)	67,981		(2,615		)	291,360
GNMA commercial mortgage-related securities	5	(841		)	94,758		19	(10,967		)	427,161		(11,808		)	521,919
Total	241	$	(3,788	)	$	474,131	138	$	(14,897	)	$	599,484	$	(18,685	)	$	1,073,615

For comparative purposes, the following represents gross unrealized losses and the related fair value of investment securities available for sale and held to maturity, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2016.



	Less than 12 months						12 months or more						Total
December 31, 2016	Number of Securities	Unrealized Losses			Fair Value		Number of Securities	Unrealized Losses			Fair Value		Unrealized Losses			Fair Value
	($ in Thousands)
Investment securities available for sale
Residential mortgage-related securities
FNMA / FHLMC	14	$	(2,602	)	$	244,252	—	$	—		$	—	$	(2,602	)	$	244,252
GNMA	54	(25,198		)	1,723,523		—	—			—		(25,198		)	1,723,523
Private-label	—	—			—		1	(14		)	1,119		(14		)	1,119
GNMA commercial mortgage-related securities	74	(16,445		)	1,427,889		21	(19,521		)	429,258		(35,966		)	1,857,147
Other securities (debt and equity)	3	(21		)	1,479		—	—			—		(21		)	1,479
Total	145	$	(44,266	)	$	3,397,143	22	$	(19,535	)	$	430,377	$	(63,801	)	$	3,827,520
Investment securities held to maturity
Obligations of state and political subdivisions (municipal securities)	700	$	(11,937	)	$	414,186	4	$	(99	)	$	1,752	$	(12,036	)	$	415,938
Residential mortgage-related securities
FNMA / FHLMC	14	(441		)	17,477		1	(252		)	6,031		(693		)	23,508
GNMA	39	(656		)	64,633		—	—			—		(656		)	64,633
Total	753	$	(13,034	)	$	496,296	5	$	(351	)	$	7,783	$	(13,385	)	$	504,079

The Corporation reviews the investment securities portfolio on a quarterly basis to monitor its exposure to other-than-temporary impairment. A determination as to whether a security’s decline in fair value is other-than-temporary takes into consideration numerous factors and the relative significance of any single factor can vary by security. Some factors the Corporation may consider

in the other-than-temporary impairment analysis include, the length of time and extent to which the security has been in an unrealized loss position, changes in security ratings, financial condition and near-term prospects of the issuer, as well as security and industry specific economic conditions.

Based on the Corporation’s evaluation, management does not believe any unrealized loss at September 30, 2017, represents an other-than-temporary impairment as these unrealized losses are primarily attributable to changes in interest rates and the current market conditions, and not credit deterioration. The unrealized losses reported for municipal securities relate to various state and local political subdivisions and school districts. The Corporation currently does not intend to sell nor does it believe that it will be required to sell the securities contained in the above unrealized losses table before recovery of their amortized cost basis.

Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank stocks: The Corporation is required to maintain Federal Reserve stock and FHLB stock as a member of both the Federal Reserve System and the FHLB, and in amounts as required by these institutions. These equity securities are “restricted” in that they can only be sold back to the respective institutions or another member institution at par. Therefore, they are less liquid than other marketable equity securities and their fair value is equal to amortized cost. At September 30, 2017, and December 31, 2016, the Corporation had FHLB stock of $97 million and $65 million, respectively. The Corporation had Federal Reserve Bank stock of $76 million and $75 million at September 30, 2017 and December 31, 2016, respectively.

Note 7 Loans

The period end loan composition was as follows.



	September 30, 2017		December 31, 2016
	($ in Thousands)
Commercial and industrial	$	6,534,660	$	6,489,014
Commercial real estate — owner occupied	827,064		897,724
Commercial and business lending	7,361,724		7,386,738
Commercial real estate — investor	3,345,536		3,574,732
Real estate construction	1,552,135		1,432,497
Commercial real estate lending	4,897,671		5,007,229
Total commercial	12,259,395		12,393,967
Residential mortgage	7,408,471		6,332,327
Home equity	890,130		934,443
Other consumer	373,464		393,979
Total consumer	8,672,065		7,660,749
Total loans	$	20,931,460	$	20,054,716

The following table presents commercial and consumer loans by credit quality indicator at September 30, 2017.



	Pass		Special Mention		Potential Problem		Nonaccrual		Total
	($ in Thousands)
Commercial and industrial	$	6,101,491	$	157,106	$	153,779	$	122,284	$	6,534,660
Commercial real estate - owner occupied	742,257		11,741		57,468		15,598		827,064
Commercial and business lending	6,843,748		168,847		211,247		137,882		7,361,724
Commercial real estate - investor	3,284,497		10,726		46,770		3,543		3,345,536
Real estate construction	1,550,462		15		118		1,540		1,552,135
Commercial real estate lending	4,834,959		10,741		46,888		5,083		4,897,671
Total commercial	11,678,707		179,588		258,135		142,965		12,259,395
Residential mortgage	7,352,286		881		650		54,654		7,408,471
Home equity	876,003		1,364		124		12,639		890,130
Other consumer	372,638		567		—		259		373,464
Total consumer	8,600,927		2,812		774		67,552		8,672,065
Total	$	20,279,634	$	182,400	$	258,909	$	210,517	$	20,931,460

The following table presents commercial and consumer loans by credit quality indicator at December 31, 2016.



	Pass		Special Mention		Potential Problem		Nonaccrual		Total
	($ in Thousands)
Commercial and industrial	$	5,937,119	$	141,328	$	227,196	$	183,371	$	6,489,014
Commercial real estate - owner occupied	805,871		17,785		64,524		9,544		897,724
Commercial and business lending	6,742,990		159,113		291,720		192,915		7,386,738
Commercial real estate - investor	3,491,217		14,236		51,228		18,051		3,574,732
Real estate construction	1,429,083		105		2,465		844		1,432,497
Commercial real estate lending	4,920,300		14,341		53,693		18,895		5,007,229
Total commercial	11,663,290		173,454		345,413		211,810		12,393,967
Residential mortgage	6,275,162		1,314		5,615		50,236		6,332,327
Home equity	919,740		1,588		114		13,001		934,443
Other consumer	393,161		562		—		256		393,979
Total consumer	7,588,063		3,464		5,729		63,493		7,660,749
Total	$	19,251,353	$	176,918	$	351,142	$	275,303	$	20,054,716

Factors that are important to managing overall credit quality are sound loan underwriting and administration, systematic monitoring of existing loans and commitments, effective loan review on an ongoing basis, early identification of potential problems, and appropriate allowance for loan losses, allowance for unfunded commitments, nonaccrual, and charge off policies.

For commercial loans, management has determined the pass credit quality indicator to include credits that exhibit acceptable financial statements, cash flow, and leverage. If any risk exists, it is mitigated by the loan structure, collateral, monitoring, or control. For consumer loans, performing loans include credits that are performing in accordance with the original contractual terms. Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Special mention credits have potential weaknesses that deserve management’s attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the credit. Potential problem loans are considered inadequately protected by the current net worth and paying capacity of the obligor or the collateral pledged. These loans generally have a well-defined weakness, or weaknesses, that may jeopardize liquidation of the debt and are characterized by the distinct possibility that the Corporation will sustain some loss if the deficiencies are not corrected. Lastly, management considers a loan to be impaired when it is probable that the Corporation will be unable to collect all amounts due according to the original contractual terms of the note agreement, including both principal and interest. Management has determined that commercial and consumer loan relationships that have nonaccrual status or have had their terms restructured in a troubled debt restructuring meet this impaired loan definition. Commercial loans classified as special mention, potential problem, and nonaccrual are reviewed at a minimum on a quarterly basis, while pass and performing rated credits are reviewed on an annual basis or more frequently if the loan renewal is less than one year or if otherwise warranted.

The following table presents loans by past due status at September 30, 2017.



	Current		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due^(a)		Nonaccrual^(b)		Total
	($ in Thousands)
Commercial and industrial	$	6,410,690	$	1,254	$	124	$	308	$	122,284	$	6,534,660
Commercial real estate - owner occupied	809,944		1,522		—		—		15,598		827,064
Commercial and business lending	7,220,634		2,776		124		308		137,882		7,361,724
Commercial real estate - investor	3,340,884		1,109		—		—		3,543		3,345,536
Real estate construction	1,549,895		685		15		—		1,540		1,552,135
Commercial real estate lending	4,890,779		1,794		15		—		5,083		4,897,671
Total commercial	12,111,413		4,570		139		308		142,965		12,259,395
Residential mortgage	7,344,947		8,327		543		—		54,654		7,408,471
Home equity	870,300		5,852		1,339		—		12,639		890,130
Other consumer	370,216		987		699		1,303		259		373,464
Total consumer	8,585,463		15,166		2,581		1,303		67,552		8,672,065
Total	$	20,696,876	$	19,736	$	2,720	$	1,611	$	210,517	$	20,931,460


(a)	The recorded investment in loans past due 90 days or more and still accruing totaled $2 million at September 30, 2017 (the same as the reported balances for the accruing loans noted above).


(b)	Of the total nonaccrual loans, $156 million or 74% were current with respect to payment at September 30, 2017.

The following table presents loans by past due status at December 31, 2016.



	Current		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due^(a)		Nonaccrual^(b)		Total
	($ in Thousands)
Commercial and industrial	$	6,303,994	$	965	$	448	$	236	$	183,371	$	6,489,014
Commercial real estate - owner occupied	886,796		968		416		—		9,544		897,724
Commercial and business lending	7,190,790		1,933		864		236		192,915		7,386,738
Commercial real estate - investor	3,555,750		431		500		—		18,051		3,574,732
Real estate construction	1,431,284		264		105		—		844		1,432,497
Commercial real estate lending	4,987,034		695		605		—		18,895		5,007,229
Total commercial	12,177,824		2,628		1,469		236		211,810		12,393,967
Residential mortgage	6,273,949		7,298		844		—		50,236		6,332,327
Home equity	915,593		4,265		1,584		—		13,001		934,443
Other consumer	389,157		2,471		718		1,377		256		393,979
Total consumer	7,578,699		14,034		3,146		1,377		63,493		7,660,749
Total	$	19,756,523	$	16,662	$	4,615	$	1,613	$	275,303	$	20,054,716


(a)	The recorded investment in loans past due 90 days or more and still accruing totaled $2 million at December 31, 2016 (the same as the reported balances for the accruing loans noted above).


(b)	Of the total nonaccrual loans, $224 million or 81% were current with respect to payment at December 31, 2016.

The following table presents impaired loans individually evaluated under ASC Topic 310 at September 30, 2017.



	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
	($ in Thousands)
Loans with a related allowance
Commercial and industrial	$	67,226	$	72,343	$	11,540	$	76,082	$	1,050
Commercial real estate — owner occupied	12,255		12,374		1,549		12,032		192
Commercial and business lending	79,481		84,717		13,089		88,114		1,242
Commercial real estate — investor	16,974		16,988		1,812		16,992		1,224
Real estate construction	476		586		75		489		22
Commercial real estate lending	17,450		17,574		1,887		17,481		1,246
Total commercial	96,931		102,291		14,976		105,595		2,488
Residential mortgage	42,684		45,028		6,893		43,090		1,258
Home equity	10,351		11,283		3,684		10,537		411
Other consumer	1,092		1,093		118		1,095		1
Total consumer	54,127		57,404		10,695		54,722		1,670
Total loans^(a)	$	151,058	$	159,695	$	25,671	$	160,317	$	4,158
Loans with no related allowance
Commercial and industrial	$	86,802	$	99,480	$	—	$	100,398	$	927
Commercial real estate — owner occupied	6,871		7,716		—		7,016		—
Commercial and business lending	93,673		107,196		—		107,414		927
Commercial real estate — investor	589		732		—		606		—
Real estate construction	213		218		—		220		—
Commercial real estate lending	802		950		—		826		—
Total commercial	94,475		108,146		—		108,240		927
Residential mortgage	6,469		7,074		—		6,492		105
Home equity	540		543		—		540		—
Other consumer	—		—		—		—		—
Total consumer	7,009		7,617		—		7,032		105
Total loans^(a)	$	101,484	$	115,763	$	—	$	115,272	$	1,032
Total
Commercial and industrial	$	154,028	$	171,823	$	11,540	$	176,480	$	1,977
Commercial real estate — owner occupied	19,126		20,090		1,549		19,048		192
Commercial and business lending	173,154		191,913		13,089		195,528		2,169
Commercial real estate — investor	17,563		17,720		1,812		17,598		1,224
Real estate construction	689		804		75		709		22
Commercial real estate lending	18,252		18,524		1,887		18,307		1,246
Total commercial	191,406		210,437		14,976		213,835		3,415
Residential mortgage	49,153		52,102		6,893		49,582		1,363
Home equity	10,891		11,826		3,684		11,077		411
Other consumer	1,092		1,093		118		1,095		1
Total consumer	61,136		65,021		10,695		61,754		1,775
Total loans^(a)	$	252,542	$	275,458	$	25,671	$	275,589	$	5,190


(a)	The net recorded investment (defined as recorded investment, net of the related allowance) of the impaired loans represented 82% of the unpaid principal balance at September 30, 2017.

The following table presents impaired loans individually evaluated under ASC Topic 310 at December 31, 2016.



	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
	($ in Thousands)
Loans with a related allowance
Commercial and industrial	$	99,786	$	105,175	$	21,047	$	104,808	$	2,345
Commercial real estate — owner occupied	5,544		5,568		23		5,840		263
Commercial and business lending	105,330		110,743		21,070		110,648		2,608
Commercial real estate — investor	26,764		27,031		3,410		30,665		2,120
Real estate construction	509		648		84		529		31
Commercial real estate lending	27,273		27,679		3,494		31,194		2,151
Total commercial	132,603		138,422		24,564		141,842		4,759
Residential mortgage	37,902		39,979		6,438		38,608		1,551
Home equity	11,070		11,909		3,943		11,420		627
Other consumer	1,012		1,023		109		1,021		2
Total consumer	49,984		52,911		10,490		51,049		2,180
Total loans^(a)	$	182,587	$	191,333	$	35,054	$	192,891	$	6,939
Loans with no related allowance
Commercial and industrial	$	113,485	$	134,863	$	—	$	117,980	$	1,519
Commercial real estate — owner occupied	8,439		9,266		—		8,759		138
Commercial and business lending	121,924		144,129		—		126,739		1,657
Commercial real estate — investor	6,144		6,478		—		7,092		—
Real estate construction	—		—		—		—		—
Commercial real estate lending	6,144		6,478		—		7,092		—
Total commercial	128,068		150,607		—		133,831		1,657
Residential mortgage	5,974		6,998		—		6,610		184
Home equity	106		107		—		107		4
Other consumer	—		—		—		—		—
Total consumer	6,080		7,105		—		6,717		188
Total loans^(a)	$	134,148	$	157,712	$	—	$	140,548	$	1,845
Total
Commercial and industrial	$	213,271	$	240,038	$	21,047	$	222,788	$	3,864
Commercial real estate — owner occupied	13,983		14,834		23		14,599		401
Commercial and business lending	227,254		254,872		21,070		237,387		4,265
Commercial real estate — investor	32,908		33,509		3,410		37,757		2,120
Real estate construction	509		648		84		529		31
Commercial real estate lending	33,417		34,157		3,494		38,286		2,151
Total commercial	260,671		289,029		24,564		275,673		6,416
Residential mortgage	43,876		46,977		6,438		45,218		1,735
Home equity	11,176		12,016		3,943		11,527		631
Other consumer	1,012		1,023		109		1,021		2
Total consumer	56,064		60,016		10,490		57,766		2,368
Total loans^(a)	$	316,735	$	349,045	$	35,054	$	333,439	$	8,784


(a)	The net recorded investment (defined as recorded investment, net of the related allowance) of the impaired loans represented 81% of the unpaid principal balance at December 31, 2016.

Troubled Debt Restructurings (“Restructured Loans”)

Loans are considered restructured loans if concessions have been granted to borrowers that are experiencing financial difficulty. The Corporation had a recorded investment of approximately $17 million in loans modified in troubled debt restructurings for the nine months ended September 30, 2017, of which approximately $6 million were in accrual status and $11 million were in nonaccrual pending a sustained period of repayment. The following table presents nonaccrual and performing restructured loans by loan portfolio.



	September 30, 2017				December 31, 2016
	Performing Restructured Loans		Nonaccrual Restructured Loans^(a)		Performing Restructured Loans		Nonaccrual Restructured Loans^(a)
	($ in Thousands)
Commercial and industrial	$	32,572	$	7,994	$	31,884	$	1,276
Commercial real estate — owner occupied	4,077		2,145		5,490		2,220
Commercial real estate — investor	14,294		589		15,289		924
Real estate construction	316		160		359		150
Residential mortgage	16,859		20,248		18,100		21,906
Home equity	7,987		2,364		7,756		2,877
Other consumer	1,073		20		979		32
Total	$	77,178	$	33,520	$	79,857	$	29,385


(a)	Nonaccrual restructured loans have been included within nonaccrual loans.

The following table provides the number of loans modified in a troubled debt restructuring by loan portfolio during the nine months ended September 30, 2017 and 2016, respectively, and the recorded investment and unpaid principal balance as of September 30, 2017 and 2016, respectively.



	Nine Months Ended September 30, 2017					Nine Months Ended September 30, 2016
	Number of Loans	Recorded Investment^(a)		Unpaid Principal Balance^(b)		Number of Loans	Recorded Investment^(a)		Unpaid Principal Balance^(b)
	($ in Thousands)
Commercial and industrial	19	$	11,387	$	15,898	10	$	2,455	$	2,517
Commercial real estate — owner occupied	2	710		710		1	117		124
Real estate construction	—	—		—		1	66		91
Residential mortgage	48	4,445		4,638		56	4,676		4,922
Home equity	35	934		1,182		47	1,709		1,793
Other consumer	—	—		—		1	15		16
Total	104	$	17,476	$	22,428	116	$	9,038	$	9,463


(a)	Represents post-modification outstanding recorded investment.


(b)	Represents pre-modification outstanding recorded investment.

Restructured loan modifications may include payment schedule modifications, interest rate concessions, maturity date extensions, modification of note structure (A/B Note), non-reaffirmed Chapter 7 bankruptcies, principal reduction, or some combination of these concessions. During the nine months ended September 30, 2017, restructured loan modifications of commercial and industrial, commercial real estate, and real estate construction loans primarily included maturity date extensions and payment schedule modifications. Restructured loan modifications of home equity and residential mortgage loans primarily included maturity date extensions, interest rate concessions, non-reaffirmed Chapter 7 bankruptcies, or a combination of these concessions for the nine months ended September 30, 2017.

The following table provides the number of loans modified in a troubled debt restructuring during the previous twelve months which subsequently defaulted during the nine months ended September 30, 2017 and 2016, respectively, as well as the recorded investment in these restructured loans as of September 30, 2017 and 2016, respectively.



	Nine Months Ended September 30, 2017			Nine Months Ended September 30, 2016
	Number of Loans	Recorded Investment		Number of Loans	Recorded Investment
	($ in Thousands)
Commercial and industrial	1	$	1	—	$	—
Residential mortgage	21	1,335		36	3,310
Home equity	14	371		12	182
Other consumer	—	—		1	15
Total	36	$	1,707	49	$	3,507

All loans modified in a troubled debt restructuring are evaluated for impairment. The nature and extent of the impairment of restructured loans, including those which have experienced a subsequent payment default, is considered in the determination of an appropriate level of the allowance for loan losses.

Allowance for Credit Losses

The allowance for credit losses is comprised of the allowance for loan losses and the allowance for unfunded commitments. The level of the allowance for loan losses represents management’s estimate of an amount appropriate to provide for probable credit losses in the loan portfolio at the balance sheet date. The allowance for unfunded commitments is maintained at a level believed by management to be sufficient to absorb estimated probable losses related to unfunded credit facilities (including unfunded loan commitments and letters of credit) and is included in accrued expenses and other liabilities on the consolidated balance sheets. See Note 12 for additional information on the allowance for unfunded commitments.

The following table presents a summary of the changes in the allowance for loan losses by portfolio segment for the nine months ended September 30, 2017.



($ in Thousands)	Commercial and industrial			Commercial real estate - owner occupied			Commercial real estate - investor			Real estate construction			Residential mortgage			Home equity			Other consumer			Total
December 31, 2016	$	140,126		$	14,034		$	45,285		$	26,932		$	27,046		$	20,364		$	4,548		$	278,335
Charge offs	(33,928		)	(83		)	(803		)	(225		)	(1,472		)	(2,208		)	(3,238		)	(41,957		)
Recoveries	9,072			158			218			60			754			2,348			563			13,173
Net Charge offs	(24,856		)	75			(585		)	(165		)	(718		)	140			(2,675		)	(28,784		)
Provision for loan losses	23,587			(4,352		)	1,798			(1,340		)	4,632			(479		)	3,154			27,000
September 30, 2017	$	138,857		$	9,757		$	46,498		$	25,427		$	30,960		$	20,025		$	5,027		$	276,551
Allowance for loan losses
Individually evaluated for impairment	$	11,540		$	1,549		$	1,812		$	75		$	6,893		$	3,684		$	118		$	25,671
Collectively evaluated for impairment	127,317			8,208			44,686			25,352			24,067			16,341			4,909			250,880
Total allowance for loan losses	$	138,857		$	9,757		$	46,498		$	25,427		$	30,960		$	20,025		$	5,027		$	276,551
Loans
Individually evaluated for impairment	$	154,028		$	19,126		$	17,563		$	689		$	49,153		$	10,891		$	1,092		$	252,542
Collectively evaluated for impairment	6,380,632			807,938			3,327,973			1,551,446			7,359,318			879,239			372,372			20,678,918
Total loans	$	6,534,660		$	827,064		$	3,345,536		$	1,552,135		$	7,408,471		$	890,130		$	373,464		$	20,931,460

For comparison purposes, a summary of the changes in the allowance for loan losses by portfolio segment for the year ended December 31, 2016, was as follows.



($ in Thousands)	Commercial and industrial			Commercial real estate - owner occupied			Commercial real estate - investor			Real estate construction			Residential mortgage			Home equity			Other consumer			Total
December 31, 2015	$	129,959		$	18,680		$	43,018		$	25,266		$	28,261		$	23,555		$	5,525		$	274,264
Charge offs	(71,016		)	(512		)	(1,504		)	(558		)	(4,332		)	(4,686		)	(3,831		)	(86,439		)
Recoveries	14,543			74			1,624			203			755			3,491			820			21,510
Net Charge offs	(56,473		)	(438		)	120			(355		)	(3,577		)	(1,195		)	(3,011		)	(64,929		)
Provision for loan losses	66,640			(4,208		)	2,147			2,021			2,362			(1,996		)	2,034			69,000
December 31, 2016	$	140,126		$	14,034		$	45,285		$	26,932		$	27,046		$	20,364		$	4,548		$	278,335
Allowance for loan losses
Individually evaluated for impairment	$	21,047		$	23		$	3,410		$	84		$	6,438		$	3,943		$	109		$	35,054
Collectively evaluated for impairment	119,079			14,011			41,875			26,848			20,608			16,421			4,439			243,281
Total allowance for loan losses	$	140,126		$	14,034		$	45,285		$	26,932		$	27,046		$	20,364		$	4,548		$	278,335
Loans
Individually evaluated for impairment	$	213,271		$	13,983		$	32,908		$	509		$	43,876		$	11,176		$	1,012		$	316,735
Collectively evaluated for impairment	6,275,743			883,741			3,541,824			1,431,988			6,288,451			923,267			392,967			19,737,981
Total loans	$	6,489,014		$	897,724		$	3,574,732		$	1,432,497		$	6,332,327		$	934,443		$	393,979		$	20,054,716

At September 30, 2017, the oil and gas portfolio was comprised of 56 credits, totaling $577 million of outstanding balances. The allowance related to the oil and gas portfolio was $30 million at September 30, 2017 and represented 5.2% of total oil and gas loans.



($ in Millions)	Nine Months Ended September 30, 2017			Year Ended December 31, 2016
Balance at beginning of period	$	38		$	42
Charge offs	(26		)	(59		)
Recoveries	—			—
Net Charge offs	(26		)	(59		)
Provision for loan losses	18			55
Balance at end of period	$	30		$	38
Allowance for loan losses
Individually evaluated for impairment	$	2		$	14
Collectively evaluated for impairment	28			24
Total allowance for loan losses	$	30		$	38
Loans
Individually evaluated for impairment	$	92		$	147
Collectively evaluated for impairment	485			521
Total loans	$	577		$	668

The following table presents a summary of the changes in the allowance for unfunded commitments.



	Nine Months Ended September 30, 2017			Year Ended December 31, 2016
	($ in Thousands)
Allowance for Unfunded Commitments
Balance at beginning of period	$	25,400		$	24,400
Provision for unfunded commitments	(1,000		)	1,000
Balance at end of period	$	24,400		$	25,400

Note 8 Goodwill and Other Intangible Assets

Goodwill

Goodwill is not amortized but, instead, is subject to impairment tests on at least an annual basis, and more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

The Corporation conducted its most recent annual impairment testing in May 2017, utilizing a qualitative assessment. Factors that management considered in this assessment included macroeconomic conditions, industry and market considerations, overall financial performance of the Corporation and each reporting unit (both current and projected), changes in management strategy, and changes in the composition or carrying amount of net assets. In addition, management considered the changes in both the Corporation’s common stock price and in the overall bank common stock index (based on the S&P 400 Regional Bank Sub-Industry Index), as well as the Corporation’s earnings per common share trend over the past year. Based on these assessments, management concluded that the 2017 annual qualitative impairment assessment indicated that it is more likely than not that the estimated fair value exceeded the carrying value (including goodwill) for each reporting unit. Therefore, a step one quantitative analysis was not required. There have been no events since the May 2017 impairment testing that have changed the Corporation's impairment assessment conclusion. There were no impairment charges recorded in 2016 or the first nine months of 2017.

At both September 30, 2017 and December 31, 2016, the Corporation had goodwill of $972 million. Goodwill increased minimally by approximately $55,000 during the first quarter of 2017 as a result of a small insurance acquisition. See Note 2 for additional information on the Corporation's acquisitions.

Other Intangible Assets

The Corporation has other intangible assets that are amortized, consisting of core deposit intangibles, other intangibles (primarily related to customer relationships acquired in connection with the Corporation’s insurance agency acquisitions), and mortgage servicing rights. During the first quarter of 2017, the Corporation added approximately $162,000 of other intangibles relating to customer relationships associated with one small insurance acquisition. See Note 2 for additional information on the Corporation's acquisitions. During the fist nine months of 2017, core deposit intangibles fully amortized. For core deposit intangibles and other intangibles, changes in the gross carrying amount, accumulated amortization, and net book value were as follows.



	Nine Months Ended September 30, 2017			Year Ended December 31, 2016
	($ in Thousands)
Core deposit intangibles
Gross carrying amount	$	4,385		$	4,385
Accumulated amortization	(4,385		)	(4,273		)
Net book value	$	—		$	112
Amortization during the year	$	112		$	281
Other intangibles
Gross carrying amount	$	32,572		$	32,410
Accumulated amortization	(18,492		)	(17,145		)
Net book value	$	14,080		$	15,265
Additions during the period	$	162		$	1,012
Amortization during the year	$	1,347		$	1,812

The Corporation sells residential mortgage loans in the secondary market and typically retains the right to service the loans sold. Mortgage servicing rights are amortized in proportion to and over the period of estimated net servicing income and assessed for impairment at each reporting date.

The Corporation evaluates its mortgage servicing rights asset for impairment at minimum on a quarterly basis. Impairment is assessed based on fair value at each reporting date using estimated prepayment speeds of the underlying mortgage loans serviced and stratifications based on the risk characteristics of the underlying loans (predominantly loan type and note interest rate). As mortgage interest rates fall, prepayment speeds are usually faster and the value of the mortgage servicing rights asset generally decreases, requiring additional valuation reserve. Conversely, as mortgage interest rates rise, prepayment speeds are usually slower and the value of the mortgage servicing rights asset generally increases, requiring less valuation reserve. A valuation allowance is established, through a charge to earnings, to the extent the amortized cost of the mortgage servicing rights exceeds the estimated fair value by stratification. If it is later determined that all or a portion of the temporary impairment no longer exists for a stratification, the valuation is reduced through a recovery to earnings. An other-than-temporary impairment (i.e., recoverability is considered

remote when considering interest rates and loan pay off activity) is recognized as a write-down of the mortgage servicing rights asset and the related valuation allowance (to the extent a valuation allowance is available) and then against earnings. A direct write-down permanently reduces the carrying value of the mortgage servicing rights asset and valuation allowance, precluding subsequent recoveries. See Note 12 for a discussion of the recourse provisions on sold residential mortgage loans. See Note 13 which further discusses fair value measurement relative to the mortgage servicing rights asset.

A summary of changes in the balance of the mortgage servicing rights asset and the mortgage servicing rights valuation allowance was as follows.



	Nine Months Ended September 30, 2017			Year Ended December 31, 2016
	($ in Thousands)
Mortgage servicing rights
Mortgage servicing rights at beginning of period	$	62,085		$	62,150
Additions	4,822			12,262
Amortization	(7,635		)	(12,327		)
Mortgage servicing rights at end of period	$	59,272		$	62,085
Valuation allowance at beginning of period	(609		)	(809		)
(Additions) recoveries, net	(286		)	200
Valuation allowance at end of period	(895		)	(609		)
Mortgage servicing rights, net	$	58,377		$	61,476
Fair value of mortgage servicing rights	$	62,625		$	73,149
Portfolio of residential mortgage loans serviced for others (“servicing portfolio”)	$	7,653,458		$	7,974,742
Mortgage servicing rights, net to servicing portfolio	0.76		%	0.77		%
Mortgage servicing rights expense ^(a)	$	7,921		$	12,127


(a)	Includes the amortization of mortgage servicing rights and additions / recoveries to the valuation allowance of mortgage servicing rights, and is a component of mortgage banking, net in the consolidated statements of income.

The following table shows the estimated future amortization expense for amortizing intangible assets. The projections of amortization expense are based on existing asset balances, the current interest rate environment, and prepayment speeds as of September 30, 2017. The actual amortization expense the Corporation recognizes in any given period may be significantly different depending upon acquisition or sale activities, changes in interest rates, prepayment speeds, market conditions, regulatory requirements, and events or circumstances that indicate the carrying amount of an asset may not be recoverable.



Estimated Amortization Expense	Other Intangibles		Mortgage Servicing Rights
	($ in Thousands)
Three Months Ended December 31, 2017	$	451	$	2,593
2018	1,771		9,337
2019	1,472		7,792
2020	1,355		6,522
2021	1,331		5,484
2022	1,308		4,641
Beyond 2022	6,392		22,903
Total Estimated Amortization Expense	$	14,080	$	59,272

Note 9 Short and Long-Term Funding

The following table presents the components of short-term funding (funding with original contractual maturities of one year or less) and long-term funding (funding with original contractual maturities greater than one year).



	September 30, 2017			December 31, 2016
	($ in Thousands)
Short-Term Funding
Federal funds purchased	$	220,575		$	208,150
Securities sold under agreements to repurchase	255,975			300,197
Federal funds purchased and securities sold under agreements to repurchase	$	476,550		$	508,347
FHLB advances	520,000			482,000
Commercial paper	68,067			101,688
Other short-term funding	588,067			583,688
Total short-term funding	$	1,064,617		$	1,092,035
Long-Term Funding
FHLB advances	$	2,650,172		$	2,265,188
Senior notes, at par	250,000			250,000
Subordinated notes, at par	250,000			250,000
Other long-term funding and capitalized costs	(2,887		)	(3,393		)
Total long-term funding	3,147,285			2,761,795
Total short and long-term funding	$	4,211,902		$	3,853,830

Securities Sold Under Agreements to Repurchase ("Repurchase Agreements")

The Corporation enters into agreements under which it sells securities subject to an obligation to repurchase the same or similar securities. Under these arrangements, the Corporation may transfer legal control over the assets but still retain effective control through an agreement that both entitles and obligates the Corporation to repurchase the assets. The obligation to repurchase the securities is reflected as a liability on the Corporation’s consolidated balance sheets, while the securities underlying the repurchase agreements remain in the respective investment securities asset accounts (i.e., there is no offsetting or netting of the investment securities assets with the repurchase agreement liabilities). See Note 11 for additional disclosures on balance sheet offsetting.

The Corporation utilizes securities sold under agreements to repurchase to facilitate the needs of its customers. As of September 30, 2017, the Corporation pledged agency mortgage-related securities with a fair value of $391 million as collateral for the repurchase agreements. Securities pledged as collateral under repurchase agreements are maintained with the Corporation's safekeeping agents and are monitored on a daily basis due to the market risk of fair value changes in the underlying securities. The Corporation generally pledges excess securities to ensure there is sufficient collateral to satisfy short-term fluctuations in both the repurchase agreement balances and the fair value of the underlying securities.

The remaining contractual maturity of the securities sold under agreements to repurchase in the consolidated balance sheets as of September 30, 2017 and December 31, 2016 are presented in the following table.



	Remaining Contractual Maturity of the Agreements
	Overnight and Continuous		Up to 30 days		30-90 days		Greater than 90 days		Total
September 30, 2017					($ in Thousands)
Repurchase agreements
Agency mortgage-related securities	$	255,975	$	—	$	—	$	—	$	255,975
Total	$	255,975	$	—	$	—	$	—	$	255,975
December 31, 2016
Repurchase agreements
Agency mortgage-related securities	$	300,197	$	—	$	—	$	—	$	300,197
Total	$	300,197	$	—	$	—	$	—	$	300,197

Long-Term Funding

FHLB advances: At September 30, 2017, the long-term FHLB advances had a weighted average interest rate of 1.02%, compared to 0.50% at December 31, 2016. The majority of FHLB advances are indexed to the FHLB discount note and re-price at varying intervals. The advances offer flexible, low cost, long-term funding that improves the Corporation’s liquidity profile.

Senior notes: In November 2014, the Corporation issued $250 million of senior notes, due November 2019, and callable October 2019. The senior notes have a fixed coupon interest rate of 2.75% and were issued at a discount.

Subordinated notes: In November 2014, the Corporation issued $250 million of 10-year subordinated notes, due January 2025, and callable October 2024. The subordinated notes have a fixed coupon interest rate of 4.25% and were issued at a discount.

Note 10 Derivative and Hedging Activities

The Corporation facilitates customer borrowing activity by providing various interest rate risk management, commodity hedging, and foreign currency exchange solutions through its capital markets area. To date, all of the notional amounts of customer transactions have been matched with a mirror hedge with another counterparty. The Corporation has used, and may use again in the future, derivative instruments to hedge the variability in interest payments or protect the value of certain assets and liabilities recorded on its consolidated balance sheets from changes in interest rates. The predominant derivative and hedging activities include interest rate-related instruments (swaps and caps), foreign currency exchange forwards, commodity contracts, written options, purchased options, and certain mortgage banking activities.

The contract or notional amount of a derivative is used to determine, along with the other terms of the derivative, the amounts to be exchanged between the counterparties. The Corporation is exposed to credit risk in the event of nonperformance by counterparties to financial instruments. To mitigate the counterparty risk, interest rate and commodity-related instruments generally contain language outlining collateral pledging requirements for each counterparty. Collateral must be posted when the market value exceeds certain mutually agreed upon threshold limits. The Corporation pledged $26 million of investment securities as collateral at September 30, 2017, and pledged $40 million of investment securities as collateral at December 31, 2016. Federal regulations require the Corporation to clear all LIBOR interest rate swaps through a clearing house if it can be cleared. As such, the Corporation is required to pledge cash collateral for the margin. At September 30, 2017 the Corporation posted $3 million of cash collateral for the margin compared to none at December 31, 2016.

Derivatives to Accommodate Customer Needs

The Corporation enters into various derivative contracts which are designated as free standing derivative contracts. Free standing derivative products are entered into primarily for the benefit of commercial customers seeking to manage their exposures to interest rate risk, foreign currency, and commodity prices. These derivative contracts are not designated against specific assets and liabilities on the balance sheet or forecasted transactions and, therefore, do not qualify for hedge accounting treatment. Such derivative contracts are carried at fair value on the consolidated balance sheets with changes in the fair value recorded as a component of Capital market fees, net, and typically include interest rate-related instruments (swaps and caps), foreign currency exchange forwards, and commodity contracts. See Note 11 for additional information and disclosures on balance sheet offsetting.

Interest rate-related instruments: The Corporation provides interest rate risk management services to commercial customers, primarily forward interest rate swaps and caps. The Corporation’s market risk from unfavorable movements in interest rates related to these derivative contracts is generally economically hedged by concurrently entering into offsetting derivative contracts. The offsetting derivative contracts have identical notional values, terms and indices.

Foreign currency exchange forwards: The Corporation provides foreign currency exchange services to customers, primarily forward contracts. Our customers enter into a foreign currency exchange forward with the Corporation as a means for them to mitigate exchange rate risk. The Corporation mitigates its risk by then entering into an offsetting foreign currency exchange derivative contract.

Commodity contracts: Commodity contracts are entered into primarily for the benefit of commercial customers seeking to manage their exposure to fluctuating commodity prices. The Corporation mitigates its risk by then entering into an offsetting commodity derivative contract.

The table below identifies the balance sheet category and fair values of the Corporation’s free standing derivative instruments, which are not designated as hedging instruments.



	September 30, 2017						December 31, 2016
($ in Thousands)	Notional Amount		Fair Value			Balance Sheet Category	Notional Amount		Fair Value			Balance Sheet Category
Interest rate-related instruments — customer and mirror	$	2,198,794	$	26,837		Trading assets	$	2,039,323	$	33,671		Trading assets
Interest rate-related instruments — customer and mirror	2,198,794		(26,469		)	Trading liabilities	2,039,323		(33,188		)	Trading liabilities
Foreign currency exchange forwards	130,191		3,053			Trading assets	109,675		2,002			Trading assets
Foreign currency exchange forwards	122,307		(3,033		)	Trading liabilities	106,251		(1,943		)	Trading liabilities
Commodity contracts	424,996		18,539			Trading assets	127,582		16,725			Trading assets
Commodity contracts	396,754		(17,310		)	Trading liabilities	128,368		(15,972		)	Trading liabilities

Mortgage Derivatives

Interest rate lock commitments to originate residential mortgage loans held for sale and forward commitments to sell residential mortgage loans are considered derivative instruments, and the fair value of these commitments is recorded on the consolidated balance sheets with the changes in fair value recorded as a component of mortgage banking, net.

Written and Purchased Options (Time Deposit)

Historically, the Corporation had entered into written and purchased option derivative instruments to facilitate an equity linked time deposit product (the “Power CD”), which the Corporation ceased offering in September 2013. The Power CD was a time deposit that provided the purchaser a guaranteed return of principal at maturity plus a potential equity return (a written option), while the Corporation received a known stream of funds based on the equity return (a purchased option). The written and purchased options are mirror derivative instruments, which are carried at fair value on the consolidated balance sheets.

The table below identifies the balance sheet category and fair values of the Corporation’s derivative instruments, which are not designated as hedging instruments.



	September 30, 2017						December 31, 2016
($ in Thousands)	Notional Amount		Fair Value			Balance Sheet Category	Notional Amount		Fair Value			Balance Sheet Category
Interest rate lock commitments (mortgage)	$	354,075	$	2,729		Other assets	$	285,345	$	206		Other assets
Forward commitments (mortgage)	243,500		234			Other assets	179,600		2,908			Other assets
Purchased options (time deposit)	53,074		1,434			Other assets	80,554		2,576			Other assets
Written options (time deposit)	53,074		(1,434		)	Other liabilities	80,554		(2,576		)	Other liabilities

The table below identifies the income statement category of the gains and losses recognized in income on the Corporation’s derivative instruments not designated as hedging instruments.



	Income Statement Category of Gain / (Loss) Recognized in Income	Nine Months Ended September 30,
($ in Thousands)		2017			2016
Derivative Instruments
Interest rate-related instruments — customer and mirror, net	Capital market fees, net	$	(115	)	$	(888	)
Interest rate lock commitments (mortgage)	Mortgage banking, net	2,523			2,768
Forward commitments (mortgage)	Mortgage banking, net	(2,674		)	(2,271		)
Foreign currency exchange forwards	Capital market fees, net	(39		)	(85		)
Commodity contracts	Capital market fees, net	476			690

Note 11 Balance Sheet Offsetting

Interest Rate-Related Instruments and Commodity Contracts (“Interest and Commodity Agreements”)

The Corporation enters into interest rate-related instruments to facilitate the interest rate risk management strategies of commercial customers. The Corporation also enters into commodity contracts to manage commercial customers' exposure to fluctuating commodity prices. The Corporation mitigates these risks by entering into equal and offsetting interest and commodity agreements with highly rated third party financial institutions. The Corporation is party to master netting arrangements with its financial institution counterparties that creates a single net settlement of all legal claims or obligations to pay or receive the net amount of settlement of the individual interest and commodity agreements. Collateral, usually in the form of investment securities and cash, is posted by the counterparty with net liability positions in accordance with contract thresholds. The Corporation does not offset assets and liabilities under these arrangements for financial statement presentation purposes. See Note 10 for additional information on the Corporation’s derivative and hedging activities.

Securities Sold Under Agreements to Repurchase (“Repurchase Agreements”)

The Corporation enters into agreements under which it sells securities subject to an obligation to repurchase the same or similar securities. These repurchase agreements are accounted for as collateralized financing arrangements (i.e., secured borrowings) and not as a sale and subsequent repurchase of securities (i.e., there is no offsetting or netting of the investment securities assets with the repurchase agreement liabilities). The right of set-off for a repurchase agreement resembles a secured borrowing, whereby the collateral would be used to settle the fair value of the repurchase agreement should the Corporation be in default (e.g., fails to make an interest payment to the counterparty). In addition, the Corporation does not enter into reverse repurchase agreements; therefore, there is no such offsetting to be done with the repurchase agreements. See Note 9 for additional disclosures on repurchase agreements.

The following table presents the assets and liabilities subject to an enforceable master netting arrangement. The interest and commodity agreements we have with our commercial customers are not subject to an enforceable master netting arrangement, and therefore, are excluded from this table.



	Gross amounts recognized						Gross amounts not offset in the balance sheet
	Gross amounts recognized		Gross amounts offset in the balance sheet		Net amounts presented in the balance sheet		Financial instruments			Collateral			Net amount
	($ in Thousands)
September 30, 2017
Derivative assets
Interest and commodity agreements	$	23,224	$	—	$	23,224	$	(21,783	)	$	(1,441	)	$	—
Derivative liabilities
Interest and commodity agreements	$	21,783	$	—	$	21,783	$	(21,783	)	$	—		$	—
December 31, 2016
Derivative assets
Interest and commodity agreements	$	18,031	$	—	$	18,031	$	(18,031	)	$	—		$	—
Derivative liabilities
Interest and commodity agreements	$	31,075	$	—	$	31,075	$	(18,031	)	$	(11,148	)	$	1,896

Note 12 Commitments, Off-Balance Sheet Arrangements, Legal Proceedings and Regulatory Matters



	September 30, 2017		December 31, 2016
	($ in Thousands)
Commitments to extend credit, excluding commitments to originate residential mortgage loans held for sale^(a)(b)	$	8,002,766	$	8,131,131
Commercial letters of credit^(a)	8,961		7,923
Standby letters of credit^(c)	233,783		259,632


(a)	These off-balance sheet financial instruments are exercisable at the market rate prevailing at the date the underlying transaction will be completed and, thus, are deemed to have no current fair value, or the fair value is based on fees currently charged to enter into similar agreements and is not material at September 30, 2017 or December 31, 2016.


(b)	Interest rate lock commitments to originate residential mortgage loans held for sale are considered derivative instruments and are disclosed in Note 10.


(c)	The Corporation has established a liability of $2 million at September 30, 2017 and $3 million at December 31, 2016, as an estimate of the fair value of these financial instruments.

Lending-related Commitments

As a financial services provider, the Corporation routinely enters into commitments to extend credit. Such commitments are subject to the same credit policies and approval process accorded to loans made by the Corporation, with each customer’s creditworthiness evaluated on a case-by-case basis. The commitments generally have fixed expiration dates or other termination clauses and may require the payment of a fee. The Corporation’s exposure to credit loss in the event of nonperformance by the other party to these financial instruments is represented by the contractual amount of those instruments. The amount of collateral obtained, if deemed necessary by the Corporation upon extension of credit, is based on management’s credit evaluation of the customer. Since a significant portion of commitments to extend credit are subject to specific restrictive loan covenants or may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash flow requirements. An allowance for unfunded commitments is maintained at a level believed by management to be sufficient to absorb estimated probable losses related to unfunded commitments (including unfunded loan commitments and letters of credit). The allowance for unfunded commitments totaled $24 million at September 30, 2017 and $25 million at December 31, 2016, and is included in accrued expenses and other liabilities on the consolidated balance sheets.

Lending-related commitments include commitments to extend credit, commitments to originate residential mortgage loans held for sale, commercial letters of credit, and standby letters of credit. Commitments to extend credit are legally binding agreements to lend to customers at predetermined interest rates, as long as there is no violation of any condition established in the contracts. Interest rate lock commitments to originate residential mortgage loans held for sale and forward commitments to sell residential mortgage loans are considered derivative instruments, and the fair value of these commitments is recorded on the consolidated balance sheets. The Corporation’s derivative and hedging activity is further described in Note 10. Commercial and standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. Commercial letters of credit are issued specifically to facilitate commerce and typically result in the commitment being drawn on when the underlying transaction is consummated between the customer and the third party, while standby letters of credit generally are contingent upon the failure of the customer to perform according to the terms of the underlying contract with the third party.

Other Commitments

The Corporation has principal investment commitments to provide capital-based financing to private and public companies through either direct investments in specific companies or through investment funds and partnerships. The timing of future cash requirements to fund such commitments is generally dependent on the investment cycle, whereby privately held companies are funded by private equity investors and ultimately sold, merged, or taken public through an initial offering, which can vary based on overall market conditions, as well as the nature and type of industry in which the companies operate. The Corporation also invests in unconsolidated projects including low-income housing, new market tax credit projects, and historic tax credit projects to promote the revitalization of primarily low-to-moderate-income neighborhoods throughout the local communities of its bank subsidiary. As a limited partner in these unconsolidated projects, the Corporation is allocated tax credits and deductions associated with the underlying projects. The aggregate carrying value of these investments at September 30, 2017, was $142 million, compared to $85 million at December 31, 2016, included in other assets on the consolidated balance sheets. Related to these investments, the Corporation had remaining commitments to fund of $101 million at September 30, 2017, and $69 million at December 31, 2016.

Legal Proceedings

The Corporation is party to various pending and threatened claims and legal proceedings arising in the normal course of business activities, some of which involve claims for substantial amounts. Although there can be no assurance as to the ultimate outcomes, the Corporation believes it has meritorious defenses to the claims asserted against it in its currently outstanding matters, including the matters described below, and with respect to such legal proceedings, intends to continue to defend itself vigorously. The Corporation will consider settlement of cases when, in management’s judgment, it is in the best interests of both the Corporation and its shareholders.

On at least a quarterly basis, the Corporation assesses its liabilities and contingencies in connection with all pending or threatened claims and litigation, utilizing the most recent information available. On a matter by matter basis, an accrual for loss is established for those matters which the Corporation believes it is probable that a loss may be incurred and that the amount of such loss can be reasonably estimated. Once established, each accrual is adjusted as appropriate to reflect any subsequent developments. Accordingly, management’s estimate will change from time to time, and actual losses may be more or less than the current estimate. For matters where a loss is not probable, or the amount of the loss cannot be estimated, no accrual is established.

Resolution of legal claims is inherently unpredictable, and in many legal proceedings various factors exacerbate this inherent unpredictability, including where the damages sought are unsubstantiated or indeterminate, it is unclear whether a case brought as a class action will be allowed to proceed on that basis, discovery is not complete, the proceeding is not yet in its final stages, the matters present legal uncertainties, there are significant facts in dispute, there are a large number of parties (including where it is uncertain how liability, if any, will be shared among multiple defendants), or there is a wide range of potential results.

A lawsuit, R.J. ZAYED v. Associated Bank, N.A., was filed in the United States District Court for the District of Minnesota on January 29, 2013. The lawsuit relates to a Ponzi scheme perpetrated by Oxford Global Partners and related entities (“Oxford”) and individuals and was brought by the receiver for Oxford. Oxford was a depository customer of Associated Bank (the "Bank"). The lawsuit claims that the Bank is liable for failing to uncover the Oxford Ponzi scheme, and specifically alleges the Bank aided and abetted (1) the fraudulent scheme; (2) a breach of fiduciary duty; (3) conversion; and (4) false representations and omissions. The lawsuit seeks unspecified consequential and punitive damages. The District Court granted the Bank’s motion to dismiss the complaint on September 30, 2013. On March 2, 2015, the U.S. Court of Appeals for the Eighth Circuit reversed the District Court and remanded the case back to the District Court for further proceedings. On January 31, 2017, the District Court granted the Bank’s motion for summary judgment. The receiver has appealed the District Court’s summary judgment decision to the Eighth Circuit Court of Appeals. It is not possible for management to assess the probability of a material adverse outcome or reasonably estimate the amount of any potential loss at this time. A lawsuit by investors in the same Ponzi scheme, Herman Grad, et al v. Associated Bank, N.A., brought in Brown County, Wisconsin in October 2009 was dismissed by the circuit court, and the dismissal was affirmed by the Wisconsin Court of Appeals in June 2011 in an unpublished opinion.

Two complaints were filed against the Bank on January 11, 2016 in the United States Bankruptcy Court for the Northern District of Illinois, Eastern Division in connection with the In re: World Marketing Chicago, LLC, et al Chapter 11 bankruptcy proceeding. In the first complaint, The Official Committee of Unsecured Creditors of World Marketing Chicago, LLC, et al v. Associated Bank, N.A., the plaintiff seeks to avoid guarantees and pledges of collateral given by the debtors to secure a revolving financing commitment of $6 million to the debtors’ parent company from the Bank. The plaintiff alleges a variety of legal theories under federal and state law, including fraudulent conveyance, preferential transfer and conversion, in support of its position. The plaintiff seeks return of approximately $4 million paid to the Bank and the avoidance of the security interest in the collateral securing the remaining indebtedness to the Bank. The Bank intends to vigorously defend this lawsuit. In the second complaint, American Funds Service Company v. Associated Bank, N.A., the plaintiff alleges that approximately $600,000 of funds it had advanced to the World Marketing entities to apply towards future postage fees was swept by the Bank from World Marketing’s bank accounts. Plaintiff seeks the return of such funds from the Bank under several theories, including Sec. 541(d) of the Bankruptcy Code, the creation of a resulting trust, and unjust enrichment. The Bank intends to vigorously defend this lawsuit. It is not possible for management to assess the probability of a material adverse outcome or reasonably estimate the amount of any potential loss at this time with respect to these two lawsuits.

Subsequent to the announcement on July 20, 2017, of the Merger Agreement between the Corporation and Bank Mutual, several lawsuits were filed in connection with the proposed merger. On July 28, 2017, two substantially identical purported class action complaints, each by various individual plaintiffs, were filed with the Wisconsin Circuit Court for Milwaukee County on behalf of the respective named plaintiffs and other Bank Mutual shareholders against Bank Mutual, the members of the Bank Mutual board, and the Corporation. The lawsuits are captioned Schumel et al v. Bank Mutual Corporation et al. and Paquin et al. v. Bank Mutual Corporation et al. Both complaints allege state law breach of fiduciary duty claims against the Bank Mutual board for, among other things, seeking to sell Bank Mutual through an allegedly defective process, for an allegedly unfair price and on allegedly unfair terms. On August 30, 2017, a third purported class action complaint, captioned Wollenburg et al. v. Bank Mutual Corporation

et al., was filed in the Wisconsin Circuit Court for Milwaukee County, on behalf of the same class of shareholders and against the same defendants as the prior two complaints. The Wollenburg complaint asserts similar allegations as the prior two complaints, and further alleges that the preliminary proxy statement/prospectus filed with the SEC contains various alleged misstatements or omissions under federal securities law. The Paquin, Schumel and Wollenburg complaints allege that the Corporation aided and abetted Bank Mutual's directors' alleged breaches of fiduciary duty. The parties have entered into a stipulation seeking to consolidate the three actions. On September 13, 2017, the Corporation filed a notice of removal of the Paquin, Schumel and Wollenburg actions to the United States District Court for the Eastern District of Wisconsin. On September 15, 2017, the plaintiffs in the Paquin, Schumel and Wollenburg actions filed identical motions to remand the three cases back to state court, and on September 27, 2017, the defendants filed oppositions to the motions to remand. On October 3, 2017, the defendants filed motions to dismiss the three actions. On September 6, 2017, a fourth purported class action complaint, captioned Parshall et al., v. Bank Mutual Corporation et al., was filed in the U.S. District Court for the Eastern District of Wisconsin, on behalf of the same class of shareholders and against the same defendants as the prior complaints. The Parshall complaint criticizes the adequacy of the merger consideration and alleges that Bank Mutual, the members of the Bank Mutual board and the Corporation allegedly omitted and/or misrepresented certain information in the registration statement on Form S-4 filed in connection with the proposed merger in violation of the federal securities laws. The lawsuits seek, among other things, to enjoin the consummation of the transaction and damages. The Corporation believes the allegations are without merit. On October 13, 2017, Bank Mutual and the Corporation reached agreement with the plaintiffs in each of the four cases whereby Bank Mutual issued certain additional disclosures in a Form 8-K, and each of the plaintiffs have agreed to dismiss their actions with prejudice as to the named plaintiffs and without prejudice as to the rest of the purported class members.

Regulatory Matters

On May 22, 2015, the Bank entered into a Conciliation Agreement ("Conciliation Agreement") with the U.S. Department of Housing and Urban Development ("HUD") which resolved the HUD investigation into the Bank's lending practices during the years 2008-2010. The Bank's commitments under the Conciliation Agreement are spread over a three-year period and include commitments to do the following in minority communities: make mortgage loans of approximately $196 million; open one branch and four loan production offices; establish special financing programs; make affordable home repair grants; engage in affirmative marketing outreach; provide financial education programs; and make grants to support community reinvestment training and education. The cost of these commitments will be spread over four calendar years and is not expected to have a material impact on the Corporation's financial condition or results of operation.

Beginning in late 2013, the Corporation began reviewing a variety of legacy products provided by third parties, including debt protection and identity protection products. In connection with this review, the Corporation has made remediation payments to affected customers and former customers, and has reserved accordingly.

A variety of consumer products, including the legacy debt protection and identity protection products referred to above, and mortgage and deposit products, and certain fees and charges related to such products, have come under increased regulatory scrutiny. It is possible that regulatory authorities could bring enforcement actions, including civil money penalties, or take other actions against the Corporation and the Bank in regard to these consumer products. The Bank could also determine of its own accord, or be required by regulators, to refund or otherwise make remediation payments to customers in connection with these products. It is not possible at this time for management to assess the probability of a material adverse outcome or reasonably estimate the amount of any potential loss related to such matters.

On March 27, 2017, the Bank received a Community Reinvestment Act ("CRA") rating from the Office of the Comptroller of the Currency of "Satisfactory" for the period from January 1, 2011 through July 27, 2015. As a result of this rating, the restrictions on certain of the Bank's activities that had been imposed under the previous "Needs to Improve" CRA rating are no longer applicable.

Mortgage Repurchase Reserve

The Corporation sells residential mortgage loans to investors in the normal course of business. Residential mortgage loans sold to others are predominantly conventional residential first lien mortgages originated under our usual underwriting procedures, and are most often sold on a nonrecourse basis, primarily to the GSEs. The Corporation’s agreements to sell residential mortgage loans in the normal course of business usually require certain representations and warranties on the underlying loans sold, related to credit information, loan documentation, collateral, and insurability. Subsequent to being sold, if a material underwriting deficiency or documentation defect is discovered, the Corporation may be obligated to repurchase the loan or reimburse the GSEs for losses incurred (collectively, “make whole requests”). The make whole requests and any related risk of loss under the representations and warranties are largely driven by borrower performance.

As a result of make whole requests, the Corporation has repurchased loans with principal balances of approximately $1 million and $2 million during the nine months ended September 30, 2017 and the year ended December 31, 2016, respectively. The loss reimbursement and settlement claims paid for both the nine months ended September 30, 2017 and the year ended December 31,

2016 were negligible. Make whole requests during 2016 and the first nine months of 2017 generally arose from loans sold during the period of January 1, 2012 to September 30, 2017, which totaled $9.7 billion at the time of sale, and consisted primarily of loans sold to GSEs. As of September 30, 2017, approximately $6.1 billion of these sold loans remain outstanding.

The balance in the mortgage repurchase reserve at the balance sheet date reflects the estimated amount of potential loss the Corporation could incur from repurchasing a loan, as well as loss reimbursements, indemnifications, and other settlement resolutions. The following summarizes the changes in the mortgage repurchase reserve.



	Nine Months Ended September 30, 2017			Year Ended December 31, 2016
	($ in Thousands)
Balance at beginning of period	$	900		$	1,197
Repurchase provision expense	165			456
Adjustments to provision expense	—			(750		)
Charge offs, net	(148		)	(3		)
Balance at end of period	$	917		$	900

The Corporation may also sell residential mortgage loans with limited recourse (limited in that the recourse period ends prior to the loan’s maturity, usually after certain time and / or loan paydown criteria have been met), whereby repurchase could be required if the loan had defined delinquency issues during the limited recourse periods. At September 30, 2017, and December 31, 2016, there were approximately $77 million and $62 million, respectively, of residential mortgage loans sold with such recourse risk. There have been limited instances and immaterial historical losses on repurchases for recourse under the limited recourse criteria.

The Corporation has a subordinate position to the FHLB in the credit risk on residential mortgage loans it sold to the FHLB in exchange for a monthly credit enhancement fee. The Corporation has not sold loans to the FHLB with such credit risk retention since February 2005. At September 30, 2017 and December 31, 2016, there were $79 million and $98 million, respectively, of such residential mortgage loans with credit risk recourse, upon which there have been negligible historical losses to the Corporation.

Note 13 Fair Value Measurements

Fair value represents the estimated price at which an orderly transaction to sell an asset or to transfer a liability would take place between market participants at the measurement date under current market conditions (i.e., an exit price concept).

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Following is a description of the valuation methodologies used for the Corporation’s more significant instruments measured on a recurring basis at fair value, including the general classification of such instruments pursuant to the valuation hierarchy.

Investment securities available for sale: Where quoted prices are available in an active market, investment securities are classified in Level 1 of the fair value hierarchy. If quoted market prices are not available for the specific security, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows, with consideration given to the nature of the quote and the relationship of recently evidenced market activity to the fair value estimate, and are classified in Level 2 of the fair value hierarchy. Lastly, in certain cases where there is limited activity or less transparency around inputs to the estimated fair value, securities are classified within Level 3 of the fair value hierarchy. To validate the fair value estimates, assumptions, and controls, the Corporation looks to transactions for similar instruments and utilizes independent pricing provided by third party vendors or brokers and relevant market indices. While none of these sources are solely indicative of fair value, they serve as directional indicators for the appropriateness of the Corporation’s fair value estimates. The Corporation has determined that the fair value measures of its investment securities are classified predominantly within Level 1 or 2 of the fair value hierarchy. See Note 6 for additional disclosure regarding the Corporation’s investment securities.

Residential loans held for sale: Loans held for sale, which consist generally of current production of certain fixed-rate, first-lien residential mortgage loans, are now carried at estimated fair value. Effective January 1, 2017, management elected the fair value option to account for all newly originated mortgage loans held for sale which results in the financial impact of changing market conditions being reflected currently in earnings as opposed to being dependent upon the timing of sales. Therefore, the continually adjusted values going forward will better reflect the price the Corporation expects to receive from the sale of such loans. The estimated fair value was based on what secondary markets are currently offering for portfolios with similar characteristics, which the Corporation classifies as a Level 2 fair value measurement.

Derivative financial instruments (interest rate-related instruments): The Corporation has used, and may use again in the future, interest rate swaps to manage its interest rate risk. In addition, the Corporation offers interest rate-related instruments (swaps and caps) to service our customers’ needs, for which the Corporation simultaneously enters into offsetting derivative financial

instruments (i.e., mirror interest rate-related instruments) with third parties to manage its interest rate risk associated with these financial instruments. The valuation of the Corporation’s derivative financial instruments is determined using discounted cash flow analysis on the expected cash flows of each derivative and, also includes a nonperformance / credit risk component (credit valuation adjustment). See Note 10 for additional disclosure regarding the Corporation’s interest rate-related instruments.

The discounted cash flow analysis component in the fair value measurements reflects the contractual terms of the derivative financial instruments, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. More specifically, the fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments), with the variable cash payments (or receipts) based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. Likewise, the fair values of interest rate options (i.e., interest rate caps) are determined using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates fall below (or rise above) the strike rate of the floors (or caps), with the variable interest rates used in the calculation of projected receipts on the floor (or cap) based on an expectation of future interest rates derived from observable market interest rate curves and volatilities.

The Corporation also incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative financial instruments for the effect of nonperformance risk, the Corporation has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.

While the Corporation has determined that the majority of the inputs used to value its derivative financial instruments fall within Level 2 of the fair value hierarchy, the credit valuation adjustments utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. The Corporation has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions as of September 30, 2017, and December 31, 2016, and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivative financial instruments. Therefore, the Corporation has determined that the fair value measures of its derivative financial instruments in their entirety are classified within Level 2 of the fair value hierarchy.

Derivative financial instruments (foreign currency exchange forwards): The Corporation provides foreign currency exchange services to customers. In addition, the Corporation may enter into a foreign currency exchange forward to mitigate the exchange rate risk attached to the cash flows of a loan or as an offsetting contract to a forward entered into as a service to our customer. The valuation of the Corporation’s foreign currency exchange forwards is determined using quoted prices of foreign currency exchange forwards with similar characteristics, with consideration given to the nature of the quote and the relationship of recently evidenced market activity to the fair value estimate, and are classified in Level 2 of the fair value hierarchy. See Note 10 for additional disclosures regarding the Corporation’s foreign currency exchange forwards.

Derivative financial instruments (commodity contracts): The Corporation enters into commodity contracts to manage commercial customers' exposure to fluctuating commodity prices, for which the Corporation simultaneously enters into offsetting derivative financial instruments (i.e., mirror commodity contracts) with third parties to manage its risk associated with these financial instruments. The valuation of the Corporation’s commodity contracts is determined using quoted prices of the underlying instruments, and are classified in Level 2 of the fair value hierarchy. See Note 10 for additional disclosures regarding the Corporation’s commodity contracts.

The table below presents the Corporation’s financial instruments measured at fair value on a recurring basis as of September 30, 2017 and December 31, 2016, aggregated by the level in the fair value hierarchy within which those measurements fall.



	Fair Value Hierarchy	September 30, 2017		December 31, 2016
		($ in Thousands)
Assets
Investment securities available for sale:
U.S. Treasury securities	Level 1	$	1,001	$	1,000
Residential mortgage-related securities:
FNMA / FHLMC	Level 2	505,261		639,930
GNMA	Level 2	1,667,836		2,004,475
Private-label	Level 2	1,072		1,121
GNMA commercial mortgage-related securities	Level 2	1,513,077		2,028,898
Asset backed securities	Level 2	108,628		—
Other securities (debt and equity)	Level 1	1,650		1,602
Other securities (debt and equity)	Level 2	3,174		3,000
Other securities (debt and equity)	Level 3	—		200
Total investment securities available for sale	Level 1	2,651		2,602
Total investment securities available for sale	Level 2	3,799,048		4,677,424
Total investment securities available for sale	Level 3	—		200
Residential loans held for sale ^(a)	Level 2	113,064		—
Interest rate-related instruments	Level 2	26,837		33,671
Foreign currency exchange forwards	Level 2	3,053		2,002
Interest rate lock commitments to originate residential mortgage loans held for sale	Level 3	2,729		206
Forward commitments to sell residential mortgage loans	Level 3	234		2,908
Commodity contracts	Level 2	18,539		16,725
Purchased options (time deposit)	Level 2	1,434		2,576
Liabilities
Interest rate-related instruments	Level 2	$	26,469	$	33,188
Foreign currency exchange forwards	Level 2	3,033		1,943
Commodity contracts	Level 2	17,310		15,972
Written options (time deposit)	Level 2	1,434		2,576


(a)	Effective January 1, 2017, residential loans originated for sale are accounted for under the fair value option. Prior periods have not been restated. For more information on this accounting policy change, please refer to Note 3.

The table below presents a rollforward of the balance sheet amounts for the nine months ended September 30, 2017 and the year ended December 31, 2016, for financial instruments measured on a recurring basis and classified within Level 3 of the fair value hierarchy.



	Investment Securities Available for Sale			Derivative Financial Instruments
	($ in Thousands)
Balance December 31, 2015	$	200		$	1,361
Total net gains included in income
Mortgage derivative gain	—			1,753
Balance December 31, 2016	$	200		$	3,114
Total net losses included in income
Mortgage derivative loss	—			(151		)
Transfer out of level 3 securities^(a)	(200		)	—
Balance September 30, 2017	$	—		$	2,963

(a) During the first quarter of 2017, the $200,000 level 3 investment security was transferred to level 2 based upon new pricing information.

For Level 3 assets and liabilities measured at fair value on a recurring basis as of September 30, 2017, the Corporation utilized the following valuation techniques and significant unobservable inputs.

Derivative financial instruments (mortgage derivative — interest rate lock commitments to originate residential mortgage loans held for sale): The fair value is determined by the change in value from each loan’s rate lock date to the expected rate lock expiration date based on the underlying loan attributes, estimated closing ratios, and investor price matrix determined to be reasonably applicable to each loan commitment. The closing ratio calculation takes into consideration historical experience and loan-level attributes, particularly the change in the current interest rates from the time of initial rate lock. The closing ratio is periodically reviewed for reasonableness and reported to the Associated Mortgage Risk Management Committee. At September 30, 2017, the closing ratio was 87%.

Derivative financial instruments (mortgage derivative—forward commitments to sell mortgage loans): Mortgage derivatives include forward commitments to deliver closed end residential mortgage loans into conforming Agency Mortgage Backed Securities (To be Announced, "TBA") or conforming Cash Forward sales. The fair value of such instruments is determined by the difference of current market prices for such traded instruments or available from forward cash delivery commitments and the original traded price for such commitments.

The Corporation also relies on an internal valuation model to estimate the fair value of its forward commitments to sell residential mortgage loans (i.e., an estimate of what the Corporation would receive or pay to terminate the forward delivery contract based on market prices for similar financial instruments), which includes matching specific terms and maturities of the forward commitments against applicable investor pricing available. While there are Level 2 and 3 inputs used in the valuation models, the Corporation has determined that the majority of the inputs significant in the valuation of both of the mortgage derivatives fall within Level 3 of the fair value hierarchy. See Note 10 for additional disclosure regarding the Corporation’s mortgage derivatives.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Following is a description of the valuation methodologies used for the Corporation’s more significant instruments measured on a nonrecurring basis at the lower of amortized cost or estimated fair value, including the general classification of such instruments pursuant to the valuation hierarchy.

Commercial loans held for sale: Loans held for sale are carried at the lower of cost or estimated fair value. The estimated fair value is based on a discounted cash flow analysis, which the Corporation classifies as a Level 2 nonrecurring fair value measurement.

Other real estate owned: Certain other real estate owned, upon initial recognition, was re-measured and reported at fair value through a charge off to the allowance for loan losses based upon the estimated fair value of the other real estate owned, less estimated selling costs. The fair value of other real estate owned, upon initial recognition or subsequent impairment, was estimated using appraised values, which the Corporation classifies as a Level 2 nonrecurring fair value measurement.

For Level 3, assets and liabilities measured at fair value on a nonrecurring basis as of September 30, 2017, the Corporation utilized the following valuation techniques and significant unobservable inputs.

Impaired loans: The Corporation considers a loan impaired when it is probable that the Corporation will be unable to collect all amounts due according to the original contractual terms of the note agreement, including both principal and interest. Management has determined that commercial and consumer loan relationships that have nonaccrual status or have had their terms restructured in a troubled debt restructuring meet this impaired loan definition. For individually evaluated impaired loans, the amount of impairment is based upon the present value of expected future cash flows discounted at the loan’s effective interest rate, the estimated fair value of the underlying collateral for collateral-dependent loans, or the estimated liquidity of the note. See Note 7 for additional information regarding the Corporation’s impaired loans.

Mortgage servicing rights: Mortgage servicing rights do not trade in an active, open market with readily observable prices. While sales of mortgage servicing rights do occur, the precise terms and conditions typically are not readily available to allow for a “quoted price for similar assets” comparison. Accordingly, the Corporation utilizes an independent valuation from a third party which uses a discounted cash flow model to estimate the fair value of its mortgage servicing rights. The valuation model incorporates prepayment assumptions to project mortgage servicing rights cash flows based on the current interest rate scenario, which is then discounted to estimate an expected fair value of the mortgage servicing rights. The valuation model considers portfolio characteristics of the underlying mortgages, contractually specified servicing fees, prepayment assumptions, discount rate assumptions, delinquency rates, late charges, other ancillary revenue, costs to service, and other economic factors. The Corporation periodically reviews and assesses the underlying inputs and assumptions used in the model. In addition, the Corporation compares its fair value estimates and assumptions to observable market data for mortgage servicing rights, where available, and to recent market activity and actual portfolio experience. Due to the nature of the valuation inputs, mortgage servicing rights are classified within Level 3 of the fair value hierarchy. The Corporation uses the amortization method (i.e., lower of amortized cost or estimated fair value measured on a nonrecurring basis), not fair value measurement accounting, for its mortgage servicing rights assets.

The discounted cash flow analyses that generate expected market prices utilize the observable characteristics of the mortgage servicing rights portfolio, as well as certain unobservable valuation parameters. The significant unobservable inputs used in the fair value measurement of the Corporation’s mortgage servicing rights are the weighted average constant prepayment rate and weighted average discount rate. Significant increases (decreases) in any of those inputs in isolation could result in a significantly lower (higher) fair value measurement.

These parameter assumptions fall within a range that the Corporation, in consultation with an independent third party, believes purchasers of servicing would apply to such portfolios sold into the current secondary servicing market. Discussions are held with members from Treasury and the Community, Consumer, and Business segment to reconcile the fair value estimates and the key assumptions used by the respective parties in arriving at those estimates. The Associated Mortgage Risk Management Committee is responsible for providing control over the valuation methodology and key assumptions. To assess the reasonableness of the fair value measurement, the Corporation also compares the fair value and constant prepayment rate to a value calculated by an independent third party on an annual basis. See Note 8 for additional disclosure regarding the Corporation’s mortgage servicing rights.

The table below presents the Corporation’s assets measured at fair value on a nonrecurring basis, aggregated by the level in the fair value hierarchy within which those measurements fall.



				Income Statement Category of Adjustment Recognized in Income	Adjustment Recognized in Income
($ in Thousands)	Fair Value Hierarchy	Fair Value			Adjustment Recognized in Income
September 30, 2017
Assets
Commercial loans held for sale^(a)	Level 2	$	9,718	Provision for credit losses	$	—
Impaired loans^(c)	Level 3	54,762		Provision for credit losses^(d)	(22,703		)
Other real estate owned	Level 2	3,291		Foreclosure / OREO expense, net	(939		)
Mortgage servicing rights	Level 3	62,625		Mortgage banking, net	(286		)

December 31, 2016
Assets
Commercial loans held for sale	Level 2	$	12,474	Provision for credit losses	$	(559	)
Residential loans held for sale^(b)	Level 2	108,010		Mortgage banking, net	(3,760		)
Impaired loans^(c)	Level 3	79,270		Provision for credit losses^(d)	(75,194		)
Other real estate owned	Level 2	9,752		Foreclosure / OREO expense, net	(1,091		)
Mortgage servicing rights	Level 3	73,149		Mortgage banking, net	200


(a)	Commercial loans held for sale are carried at the lower of cost or estimated fair value. At September 30, 2017, the estimated fair value exceeded the cost and therefore there was no adjustment recognized in income.


(b)	Effective January 1, 2017, residential loans originated for sale are accounted for under the fair value option. Prior periods have not been restated. For more information on this accounting policy change, please refer to Note 3.


(c)	Represents individually evaluated impaired loans, net of the related allowance for loan losses.


(d)	Represents provision for credit losses on individually evaluated impaired loans.

The change in provision for credit loss is primarily due to the oil and gas portfolio. For more information on the oil and gas portfolio, see Note 7.

Certain nonfinancial assets and nonfinancial liabilities measured at fair value on a nonrecurring basis include the fair value analysis in the second step of a goodwill impairment test, and intangible assets and other nonfinancial long-lived assets measured at fair value for impairment assessment.

The Corporations's significant Level 3 measurements which employ unobservable inputs that are readily quantifiable pertain to mortgage servicing rights and impaired loans. The table below presents information about these inputs and further discussion is found above.



	Valuation Technique	Significant Unobservable Input	Weighted Average Input Applied
September 30, 2017	Valuation Technique	Significant Unobservable Input	Weighted Average Input Applied
Mortgage servicing rights	Discounted cash flow	Discount rate	11%
Mortgage servicing rights	Discounted cash flow	Constant prepayment rate	12%
Impaired Loans	Appraisals / Discounted cash flow	Collateral / Discount factor	16%

Fair Value of Financial Instruments

The Corporation is required to disclose estimated fair values for its financial instruments. Fair value estimates, methods, and assumptions are set forth below for the Corporation’s financial instruments.



		September 30, 2017				December 31, 2016
	Fair Value Hierarchy Level	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	Fair Value Hierarchy Level	Carrying Amount		Fair Value		Carrying Amount		Fair Value
		($ in Thousands)
Financial assets
Cash and due from banks	Level 1	$	354,331	$	354,331	$	446,558	$	446,558
Interest-bearing deposits in other financial institutions	Level 1	109,596		109,596		149,175		149,175
Federal funds sold and securities purchased under agreements to resell	Level 1	27,700		27,700		46,500		46,500
Investment securities held to maturity	Level 2	2,233,579		2,243,845		1,273,536		1,264,674
Investment securities available for sale	Level 1	2,651		2,651		2,602		2,602
Investment securities available for sale	Level 2	3,799,048		3,799,048		4,677,424		4,677,424
Investment securities available for sale	Level 3	—		—		200		200
FHLB and Federal Reserve Bank stocks	Level 2	172,446		172,446		140,001		140,001
Commercial loans held for sale	Level 2	9,718		9,718		12,474		12,474
Residential loans held for sale	Level 2	113,064		113,064		108,010		108,010
Loans, net	Level 3	20,654,909		20,504,971		19,776,381		19,680,317
Bank and corporate owned life insurance	Level 2	589,093		589,093		585,290		585,290
Derivatives (trading and other assets)	Level 2	49,863		49,863		54,974		54,974
Derivatives (trading and other assets)	Level 3	2,963		2,963		3,114		3,114
Financial liabilities
Noninterest-bearing demand, savings, interest-bearing demand, and money market accounts	Level 3	$	20,012,174	$	20,012,174	$	20,282,321	$	20,282,321
Brokered CDs and other time deposits	Level 2	2,321,277		2,321,277		1,606,127		1,606,127
Short-term funding	Level 2	1,064,617		1,064,617		1,092,035		1,092,035
Long-term funding	Level 2	3,147,285		3,171,059		2,761,795		2,791,841
Standby letters of credit^(a)	Level 2	2,346		2,346		2,566		2,566
Derivatives (trading and other liabilities)	Level 2	48,246		48,246		53,679		53,679


(a)	The commitment on standby letters of credit was $234 million and $260 million at September 30, 2017 and December 31, 2016, respectively. See Note 12 for additional information on the standby letters of credit and for information on the fair value of lending-related commitments.

Cash and due from banks, interest-bearing deposits in other financial institutions, and federal funds sold and securities purchased under agreements to resell: For these short-term instruments, the carrying amount is a reasonable estimate of fair value.

Investment securities (held to maturity and available for sale): The fair value of investment securities is based on quoted prices in active markets, or if quoted prices are not available for a specific security, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows.

FHLB and Federal Reserve Bank stocks: The carrying amount is a reasonable fair value estimate for the Federal Reserve Bank and FHLB stocks given their “restricted” nature (i.e., the stock can only be sold back to the respective institutions (FHLB or Federal Reserve Bank) or another member institution at par).

Loans held for sale: The fair value estimation process for the loans held for sale portfolio is segregated by loan type. The estimated fair value for residential loans held for sale was based on what secondary markets are currently offering for portfolios with similar characteristics. The estimated fair value for commercial loans held for sale was based on a discounted cash flow analysis.

Loans, net: The fair value estimation process for the loan portfolio uses an exit price concept and reflects discounts the Corporation believes are consistent with liquidity discounts in the market place. Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as commercial and industrial, real estate construction, commercial real estate (owner occupied and investor), residential mortgage, home equity, and other consumer. The fair value of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for similar maturities. The fair value analysis also included other assumptions to estimate fair value,

intended to approximate those a market participant would use in an orderly transaction, with adjustments for discount rates, interest rates, liquidity, and credit spreads, as appropriate.

Bank and corporate owned life insurance ("BOLI" and "COLI"): The fair value of BOLI and COLI approximates the carrying amount, because upon liquidation of these investments, the Corporation would receive the cash surrender value which equals the carrying amount. The Corporation has not purchased any new BOLI or COLI policies since 2008.

Deposits: The fair value of deposits with no stated maturity such as noninterest-bearing demand, savings, interest-bearing demand, and money market accounts, is equal to the amount payable on demand as of the balance sheet date. The fair value of Brokered CDs and other time deposits is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities. However, if the estimated fair value of Brokered CDs and other time deposits is less than the carrying value, the carrying value is reported as the fair value.

Short-term funding: The carrying amount is a reasonable estimate of fair value for existing short-term funding.

Long-term funding: Rates currently available to the Corporation for debt with similar terms and remaining maturities are used to estimate the fair value of existing long-term funding.

Standby letters of credit: The fair value of standby letters of credit represents deferred fees arising from the related off-balance sheet financial instruments. These deferred fees approximate the fair value of these instruments and are based on several factors, including the remaining terms of the agreement and the credit standing of the customer.

Derivatives (trading and other): A detailed description of the Corporation's derivative instruments can be found under the "Assets and Liabilities Measured at Fair Value on a Recurring Basis" section of this footnote.

Limitations: Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Corporation’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Corporation’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Note 14 Retirement Plans

The Corporation has a noncontributory defined benefit retirement plan (the Retirement Account Plan (“RAP”)) covering substantially all employees who meet participation requirements. The benefits are based primarily on years of service and the employee’s compensation paid. Employees of acquired entities generally participate in the RAP after consummation of the business combinations. Any retirement plans of acquired entities are typically merged into the RAP after completion of the mergers, and credit is usually given to employees for years of service at the acquired institution for vesting and eligibility purposes.

The Corporation also provides legacy healthcare access to a limited group of retired employees from a previous acquisition in the Postretirement Plan. There are no other active retiree healthcare plans.

The components of net periodic benefit cost for the RAP and Postretirement Plan for three and nine months ended September 30, 2017 and 2016 were as follows.



	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
	($ in Thousands)
Components of Net Periodic Benefit Cost
RAP
Service cost	$	1,713		$	1,636		$	5,276		$	5,086
Interest cost	1,795			1,781			5,307			5,341
Expected return on plan assets	(4,929		)	(5,085		)	(14,692		)	(15,215		)
Amortization of prior service cost	(19		)	(80		)	(56		)	(55		)
Amortization of actuarial loss	619			621			1,594			1,586
Total net pension cost	$	(821	)	$	(1,127	)	$	(2,571	)	$	(3,257	)
Postretirement Plan
Interest cost	$	26		$	35		$	74		$	107
Amortization of prior service cost	(19		)	—			(57		)	—
Amortization of actuarial loss	2			—			2			—
Total net periodic benefit cost	$	9		$	35		$	19		$	107

The Corporation’s funding policy is to pay at least the minimum amount required by federal law and regulations, with consideration given to the maximum funding amounts allowed. The Corporation regularly reviews the funding of its RAP. The Corporation made contributions of $6 million to its RAP in the first nine months of 2017. No contribution was made during the first nine months of 2016.

Note 15 Segment Reporting

The Corporation utilizes a risk-based internal profitability measurement system to provide strategic business unit reporting. The profitability measurement system is based on internal management methodologies designed to produce consistent results and reflect the underlying economics of the units. Certain strategic business units have been combined for segment information reporting purposes where the nature of the products and services, the type of customer and the distribution of those products and services are similar. The three reportable segments are Corporate and Commercial Specialty; Community, Consumer, and Business; and Risk Management and Shared Services. The financial information of the Corporation’s segments has been compiled utilizing the accounting policies described in the Corporation’s 2016 Annual Report on Form 10-K, with certain exceptions. The more significant of these exceptions are described herein.

The Corporation allocates net interest income using an internal funds transfer pricing ("FTP") methodology that charges users of funds (assets) and credits providers of funds (liabilities, primarily deposits) based on the maturity, prepayment and / or repricing characteristics of the assets and liabilities. The net effect of this allocation is recorded in the Risk Management and Shared Services segment.

A credit provision is allocated to segments based on the expected long-term annual net charge off rates attributable to the credit risk of loans managed by the segment during the period. In contrast, the level of the consolidated provision for credit losses is determined based on an incurred loss model using the methodologies described in the Corporation’s 2016 Annual Report on Form 10-K to assess the overall appropriateness of the allowance for loan losses. The net effect of the credit provision is recorded in Risk Management and Shared Services. Indirect expenses incurred by certain centralized support areas are allocated to segments based on actual usage (for example, volume measurements) and other criteria. Certain types of administrative expense and bank-

wide expense accruals (including amortization of core deposit and other intangible assets associated with acquisitions) are generally not allocated to segments. Income taxes are allocated to segments based on the Corporation’s estimated effective tax rate, with certain segments adjusted for any tax-exempt income or non-deductible expenses. Equity is allocated to the segments based on regulatory capital requirements and in proportion to an assessment of the inherent risks associated with the business of the segment (including interest, credit and operating risk).

The management accounting policies and processes utilized in compiling segment financial information are highly subjective and, unlike financial accounting, are not based on authoritative guidance similar to U.S. generally accepted accounting principles. As a result, reported segments and the financial information of the reported segments are not necessarily comparable with similar information reported by other financial institutions. Furthermore, changes in management structure or allocation methodologies and procedures may result in changes in previously reported segment financial data.

A brief description of each business segment is presented below. A more in-depth discussion of these segments can be found in the Segment Reporting footnote in the Corporation’s 2016 Annual Report on Form 10-K.

The Corporate and Commercial Specialty segment serves a wide range of customers including larger businesses, developers, not-for-profits, municipalities, and financial institutions. The Community, Consumer, and Business segment serves individuals, as well as small and mid-sized businesses. The Risk Management and Shared Services segment includes key shared operational functions and also includes residual revenue and expenses, representing the difference between actual amounts incurred and the amounts allocated to operating segments, including interest rate risk residuals (FTP mismatches) and credit risk and provision residuals (long-term credit charge mismatches).

Information about the Corporation’s segments is presented below.



Segment Income Statement Data
($ in Thousands)	Corporate and Commercial Specialty			Community, Consumer, and Business			Risk Management and Shared Services			Consolidated Total
Nine Months Ended September 30, 2017
Net interest income	$	271,615		$	270,011		$	12,589		$	554,215
Noninterest income	36,768			198,546			12,822			248,136
Total revenue	308,383			468,557			25,411			802,351
Credit provision^(a)	32,549			15,317			(21,866		)	26,000
Noninterest expense	116,578			361,580			49,276			527,434
Income (loss) before income taxes	159,256			91,660			(1,999		)	248,917
Income tax expense (benefit)	53,082			32,081			(15,500		)	69,663
Net income	$	106,174		$	59,579		$	13,501		$	179,254
Return on average allocated capital (ROCET1)^(b)	12.7		%	13.6		%	2.2		%	11.0		%
Nine Months Ended September 30, 2016
Net interest income	$	242,800		$	257,848		$	26,590		$	527,238
Noninterest income	35,172			207,460			17,962			260,594
Total revenue	277,972			465,308			44,552			787,832
Credit provision^(a)	38,933			18,357			(2,290		)	55,000
Noninterest expense	109,511			370,714			43,420			523,645
Income (loss) before income taxes	129,528			76,237			3,422			209,187
Income tax expense (benefit)	42,623			26,683			(5,560		)	63,746
Net income	$	86,905		$	49,554		$	8,982		$	145,441
Return on average allocated capital (ROCET1)^(b)	10.9		%	10.5		%	1.4		%	9.7		%



Segment Balance Sheet Data
($ in Thousands)	Corporate and Commercial Specialty		Community, Consumer, and Business		Risk Management and Shared Services		Consolidated Total
Average balances for YTD September 2017
Average earning assets	$	10,846,418	$	9,418,173	$	6,587,401	$	26,851,992
Average loans	10,837,933		9,414,880		248,165		20,500,978
Average deposits	6,759,105		11,568,220		3,486,354		21,813,679
Average allocated capital (CET1)^(b)	$	1,121,800	$	584,774	$	387,388	$	2,093,962
Average balances for YTD September 2016
Average earning assets	$	10,097,995	$	9,287,158	$	6,508,356	$	25,893,509
Average loans	10,088,777		9,285,848		166,447		19,541,072
Average deposits	5,906,695		11,320,106		3,531,614		20,758,415
Average allocated capital (CET1)^(b)	$	1,063,598	$	631,484	$	225,813	$	1,920,895


(a)	The consolidated credit provision is equal to the actual reported provision for credit losses.

(b)

The Federal Reserve establishes capital adequacy requirements for the Corporation, including common equity Tier 1. For segment reporting purposes, the return on common equity Tier 1 ("ROCET1") reflects return on average allocated common equity Tier 1. The ROCET1 for the Risk Management and Shared Services segment and the Consolidated Total is inclusive of the annualized effect of the preferred stock dividends.



Segment Income Statement Data
($ in Thousands)	Corporate and Commercial Specialty			Community, Consumer, and Business			Risk Management and Shared Services			Consolidated Total
Three Months Ended September 30, 2017
Net interest income	$	92,356		$	90,952		$	6,814		$	190,122
Noninterest income	12,278			67,867			5,750			85,895
Total revenue	104,634			158,819			12,564			276,017
Credit provision^(a)	9,499			5,046			(9,545		)	5,000
Noninterest expense	39,681			120,241			17,505			177,427
Income (loss) before income taxes	55,454			33,532			4,604			93,590
Income tax expense (benefit)	19,070			11,736			(2,217		)	28,589
Net income	$	36,384		$	21,796		$	6,821		$	65,001
Return on average allocated capital (ROCET1)^(b)	12.8		%	14.7		%	4.4		%	11.7		%
Three Months Ended September 30, 2016
Net interest income	$	83,567		$	87,274		$	7,693		$	178,534
Noninterest income	12,623			78,580			4,031			95,234
Total revenue	96,190			165,854			11,724			273,768
Credit provision^(a)	11,080			5,969			3,951			21,000
Noninterest expense	37,968			127,454			9,892			175,314
Income (loss) before income taxes	47,142			32,431			(2,119		)	77,454
Income tax expense (benefit)	14,907			11,351			(2,620		)	23,638
Net income	$	32,235		$	21,080		$	501		$	53,816
Return on average allocated capital (ROCET1)^(b)	11.7		%	13.2		%	(2.9		)%	10.5		%



Segment Balance Sheet Data
($ in Thousands)	Corporate and Commercial Specialty		Community, Consumer, and Business		Risk Management and Shared Services		Consolidated Total
Three Months Ended September 30, 2017
Average earning assets	$	10,923,762	$	9,608,242	$	6,927,791	$	27,459,795
Average loans	10,916,829		9,602,098		380,210		20,899,137
Average deposits	7,398,970		11,788,606		3,253,869		22,441,445
Average allocated capital (CET1)^(b)	$	1,125,181	$	588,841	$	405,653	$	2,119,675
Three Months Ended September 30, 2016
Average earning assets	$	10,441,454	$	9,414,718	$	6,577,991	$	26,434,163
Average loans	10,435,341		9,413,401		204,034		20,052,776
Average deposits	6,227,305		11,526,639		3,650,081		21,404,025
Average allocated capital (CET1)^(b)	$	1,091,624	$	633,392	$	227,600	$	1,952,616


(a)	The consolidated credit provision is equal to the actual reported provision for credit losses.


(b)	The Federal Reserve establishes capital adequacy requirements for the Corporation, including common equity Tier 1. For segment reporting purposes, the ROCET1 reflects return on average allocated common equity Tier 1. The ROCET1 for the Risk Management and Shared Services segment and the Consolidated Total is inclusive of the annualized effect of the preferred stock dividends.

Note 16 Accumulated Other Comprehensive Income (Loss)

The following tables summarize the components, changes, and reclassifications from accumulated other comprehensive income (loss) for the nine months and three months ended September 30, 2017 and 2016, respectively.



($ in Thousands)	Investment Securities Available For Sale			Defined Benefit Pension and Post Retirement Obligations			Accumulated Other Comprehensive Income (Loss)
Balance January 1, 2017	$	(20,079	)	$	(34,600	)	$	(54,679	)
Other comprehensive income (loss) before reclassifications	1,646			—			1,646
Amounts reclassified from accumulated other comprehensive income (loss)
Personnel expense	—			1,483			1,483
Interest income (amortization of net unrealized losses (gains) on available for sale securities transferred to held to maturity securities)	(2,499		)	—			(2,499		)
Income tax (expense) benefit	328			(567		)	(239		)
Net other comprehensive income (loss) during period	(525		)	916			391
Balance September 30, 2017	$	(20,604	)	$	(33,684	)	$	(54,288	)

Balance January 1, 2016	$	459		$	(33,075	)	$	(32,616	)
Other comprehensive income (loss) before reclassifications	59,849			—			59,849
Amounts reclassified from accumulated other comprehensive income (loss)
Investment securities gain (loss), net	(6,201		)	—			(6,201		)
Personnel expense	—			1,531			1,531
Interest income (amortization of net unrealized losses (gains) on available for sale securities transferred to held to maturity securities)	(4,465		)	—			(4,465		)
Income tax (expense) benefit	(18,768		)	(584		)	(19,352		)
Net other comprehensive income (loss) during period	30,415			947			31,362
Balance September 30, 2016	$	30,874		$	(32,128	)	$	(1,254	)

	Investment Securities Available For Sale			Defined Benefit Pension and Post Retirement Obligations			Accumulated Other Comprehensive Income (Loss)
Balance July 1, 2017	$	(19,428	)	$	(34,042	)	$	(53,470	)
Other comprehensive income (loss) before reclassifications	(1,986		)	—			(1,986		)
Amounts reclassified from accumulated other comprehensive income (loss)
Personnel expense	—			583			583
Interest income (amortization of net unrealized losses (gains) on available for sale securities transferred to held to maturity securities)	76			—			76
Income tax (expense) benefit	734			(225		)	509
Net other comprehensive income (loss) during period	(1,176		)	358			(818		)
Balance September 30, 2017	$	(20,604	)	$	(33,684	)	$	(54,288	)

Balance July 1, 2016	$	45,916		$	(32,463	)	$	13,453
Other comprehensive income (loss) before reclassifications	(22,894		)	—			(22,894		)
Amounts reclassified from accumulated other comprehensive income (loss)
Investment securities gain (loss), net	13			—			13
Personnel expense	—			541			541
Interest income (amortization of net unrealized losses (gains) on available for sale securities transferred to held to maturity securities)	(1,441		)	—			(1,441		)
Income tax (expense) benefit	9,280			(206		)	9,074
Net other comprehensive income (loss) during period	(15,042		)	335			(14,707		)
Balance September 30, 2016	$	30,874		$	(32,128	)	$	(1,254	)



ITEM 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations

Special Note Regarding Forward-Looking Statements

This report contains statements that may constitute forward-looking statements within the meaning of the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, such as statements other than historical facts contained or incorporated by reference into this report. These forward-looking statements include statements with respect to the Corporation’s financial condition, results of operations, plans, objectives, future performance and business, including statements preceded by, followed by or that include the words “believes,” “expects,” or “anticipates,” references to estimates or similar expressions. Future filings by the Corporation with the Securities and Exchange Commission ("SEC"), and future statements other than historical facts contained in written material, press releases and oral statements issued by, or on behalf of the Corporation may also constitute forward-looking statements.

All forward-looking statements contained in this report or which may be contained in future statements made for or on behalf of the Corporation are based upon information available at the time the statement is made and the Corporation assumes no obligation to update any forward-looking statements, except as required by federal securities law. Forward-looking statements are subject to significant risks and uncertainties, and the Corporation’s actual results may differ materially from the expected results discussed in such forward-looking statements. Factors that might cause actual results to differ from the results discussed in forward-looking statements include, but are not limited to, the risk factors in Item 1A, Risk Factors, in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2016, and as may be described from time to time in the Corporation’s subsequent SEC filings.

Overview

The following discussion and analysis is presented to assist in the understanding and evaluation of the Corporation’s financial condition and results of operations. It is intended to complement the unaudited consolidated financial statements, footnotes, and supplemental financial data appearing elsewhere in this Quarterly Report on Form 10-Q and should be read in conjunction therewith. Management continually evaluates strategic acquisition opportunities and other various strategic alternatives that could involve the sale or acquisition of branches or other assets, or the consolidation or creation of subsidiaries.

Beginning in the third quarter of 2017, we have removed bank and corporate owned life insurance from other assets and included it as a separate line in the balance sheet. The Corporation has not purchased any new BOLI or COLI policies since 2008. Given the increasing age of the BOLI and COLI insureds, the Corporation expects the cash surrender value to decrease over time as more policy payouts occur. All prior periods have been restated to reflect the change in presentation.

Performance Summary


•	Average loans of $20.5 billion increased $1.0 billion, or 5%, from the first nine months of 2016, and residential mortgage lending accounted for 89% of average loan growth. Average deposits of $21.8 billion increased $1.1 billion, or 5%, from the first nine months of 2016.


•	Net interest income of $554 million increased $27 million, or 5%, from the first nine months of 2016. Net interest margin was 2.83% compared to 2.80% in the first nine months of 2016.


•	Provision for credit losses of $26 million decreased $29 million, or 53%, from the first nine months of 2016.


•	Noninterest income of $248 million was down 5% from the first nine months of 2016, reflecting lower mortgage banking income, net, driven by portfolio loans sales during the first nine months of 2016.


•	Noninterest expense of $527 million for the first nine months of 2017 was up 1% compared to the first nine months 2016.

Table 1 Summary Results of Operations: Trends



	YTD Sep 2017			YTD Sep 2016			3Q17			2Q17			1Q17			4Q16			3Q16
	($ in Thousands, except per share data)
Net income	$	179,254		$	145,441		$	65,001		$	57,983		$	56,270		$	54,833		$	53,816
Net income available to common equity	172,246			138,886			62,662			55,644			53,940			52,485			51,628
Earnings per common share - basic	1.13			0.92			0.41			0.36			0.36			0.35			0.34
Earnings per common share - diluted	1.11			0.92			0.41			0.36			0.35			0.34			0.34
Effective tax rate	27.99		%	30.47		%	30.55		%	25.58		%	27.31		%	30.07		%	30.52		%

Income Statement Analysis

Net Interest Income

Table 2 Net Interest Income Analysis



	Nine Months Ended September 30,
	2017						2016
	Average Balance		Interest Income / Expense		Average Yield / Rate		Average Balance		Interest Income / Expense		Average Yield / Rate
	($ in Thousands)
Assets
Earning assets
Loans^(1)(2)(3)
Commercial and business lending	$	7,280,302	$	197,356	3.62	%	$	7,391,735	$	177,563	3.21	%
Commercial real estate lending	4,979,132		143,093		3.84	%	4,660,538		120,758		3.46	%
Total commercial	12,259,434		340,449		3.71	%	12,052,273		298,321		3.31	%
Residential mortgage	6,956,937		169,231		3.24	%	6,102,383		145,384		3.18	%
Retail	1,284,607		48,039		4.99	%	1,386,416		49,231		4.74	%
Total loans	20,500,978		557,719		3.63	%	19,541,072		492,936		3.37	%
Investment securities
Taxable	4,819,580		71,295		1.97	%	4,953,410		72,734		1.96	%
Tax-exempt⁽¹⁾	1,153,382		37,546		4.34	%	1,076,603		36,513		4.52	%
Other short-term investments	378,052		5,581		1.97	%	322,424		3,449		1.43	%
Investments and other	6,351,014		114,422		2.40	%	6,352,437		112,696		2.37	%
Total earning assets	26,851,992		$	672,141	3.34	%	25,893,509		$	605,632	3.12	%
Other assets, net	2,466,764						2,478,574
Total assets	$	29,318,756					$	28,372,083
Liabilities and Stockholders' Equity
Interest-bearing liabilities
Interest-bearing deposits
Savings	$	1,517,901	$	671	0.05	%	$	1,420,398	$	662	0.06	%
Interest-bearing demand	4,290,862		16,483		0.51	%	3,672,705		7,113		0.26	%
Money market	9,201,369		36,507		0.53	%	9,071,388		19,709		0.29	%
Time	1,853,295		12,221		0.88	%	1,550,693		9,078		0.78	%
Total interest-bearing deposits	16,863,427		65,882		0.52	%	15,715,184		36,562		0.31	%
Federal funds purchased and securities sold under agreements to repurchase	460,672		2,107		0.61	%	629,976		1,000		0.21	%
Other short-term funding	646,266		3,946		0.82	%	769,049		1,656		0.29	%
Total short-term funding	1,106,938		6,053		0.73	%	1,399,025		2,656		0.25	%
Long-term funding	2,979,712		30,133		1.35	%	2,964,807		23,657		1.06	%
Total short and long-term funding	4,086,650		36,186		1.18	%	4,363,832		26,313		0.80	%
Total interest-bearing liabilities	20,950,077		$	102,068	0.65	%	20,079,016		$	62,875	0.42	%
Noninterest-bearing demand deposits	4,950,252						5,043,231
Other liabilities	260,409						247,624
Stockholders’ equity	3,158,018						3,002,212
Total liabilities and stockholders’ equity	$	29,318,756					$	28,372,083
Interest rate spread					2.69	%					2.70	%
Net free funds					0.14	%					0.10	%
Fully tax-equivalent net interest income and net interest margin			$	570,073	2.83	%			$	542,757	2.80	%
Fully tax-equivalent adjustment			15,858						15,519
Net interest income			$	554,215					$	527,238


(1)	The yield on tax-exempt loans and securities is computed on a fully tax-equivalent basis using a tax rate of 35% for all periods presented and is net of the effects of certain disallowed interest deductions.


(2)	Nonaccrual loans and loans held for sale have been included in the average balances.


(3)	Interest income includes net loan fees.

Table 2 Net Interest Income Analysis Continued



	Three Months Ended
	September 30, 2017						June 30, 2017						September 30, 2016
	Average Balance		Interest Income / Expense		Average Yield / Rate		Average Balance		Interest Income / Expense		Average Yield / Rate		Average Balance		Interest Income / Expense		Average Yield / Rate
	($ in Thousands)
Assets
Earning assets
Loans^(1)(2)(3)
Commercial and business lending	$	7,318,594	$	71,169	3.86	%	$	7,321,523	$	65,507	3.59	%	$	7,577,470	$	61,184	3.21	%
Commercial real estate lending	4,973,436		50,396		4.02	%	4,964,257		47,562		3.84	%	4,855,827		41,600		3.41	%
Total commercial	12,292,030		121,565		3.93	%	12,285,780		113,069		3.69	%	12,433,297		102,784		3.29	%
Residential mortgage	7,339,827		59,828		3.26	%	6,957,865		56,097		3.23	%	6,255,264		49,254		3.15	%
Retail	1,267,280		16,541		5.21	%	1,278,345		16,048		5.03	%	1,364,215		16,246		4.76	%
Total loans	20,899,137		197,934		3.77	%	20,521,990		185,214		3.62	%	20,052,776		168,284		3.35	%
Investment securities
Taxable	4,846,653		24,162		1.97	%	4,781,488		23,658		1.98	%	4,859,750		22,948		1.89	%
Tax-exempt⁽¹⁾	1,177,962		12,650		4.30	%	1,143,736		12,459		4.36	%	1,119,873		12,456		4.45	%
Other short-term investments	536,043		2,492		1.85	%	297,341		1,553		2.09	%	401,764		1,064		1.06	%
Investments and other	6,560,658		39,304		2.40	%	6,222,565		37,670		2.42	%	6,381,387		36,468		2.29	%
Total earning assets	27,459,795		$	237,238	3.44	%	26,744,555		$	222,884	3.34	%	26,434,163		$	204,752	3.09	%
Other assets, net	2,504,232						2,454,351						2,534,209
Total assets	$	29,964,027					$	29,198,906					$	28,968,372
Liabilities and Stockholders' Equity
Interest-bearing liabilities
Interest-bearing deposits
Savings	$	1,545,884	$	282	0.06	%	$	1,541,129	$	201	0.05	%	$	1,448,223	$	198	0.05	%
Interest-bearing demand	4,347,550		6,767		0.62	%	4,272,620		5,506		0.52	%	4,151,708		2,937		0.28	%
Money market	9,367,907		15,357		0.65	%	9,064,874		11,763		0.52	%	9,088,943		6,956		0.30	%
Time	2,187,986		5,372		0.97	%	1,752,255		3,710		0.85	%	1,553,349		3,027		0.78	%
Total interest-bearing deposits	17,449,327		27,778		0.63	%	16,630,878		21,180		0.51	%	16,242,223		13,118		0.32	%
Federal funds purchased and securities sold under agreements to repurchase	398,200		768		0.76	%	489,571		824		0.67	%	655,825		326		0.20	%
Other short-term funding	416,124		1,039		0.99	%	842,305		1,827		0.87	%	324,623		296		0.36	%
Total short-term funding	814,324		1,807		0.88	%	1,331,876		2,651		0.80	%	980,448		622		0.25	%
Long-term funding	3,239,687		12,187		1.50	%	2,932,348		9,950		1.36	%	3,256,099		7,229		0.89	%
Total short and long-term funding	4,054,011		13,994		1.37	%	4,264,224		12,601		1.18	%	4,236,547		7,851		0.74	%
Total interest-bearing liabilities	21,503,338		$	41,772	0.77	%	20,895,102		$	33,781	0.65	%	20,478,770		$	20,969	0.41	%
Noninterest-bearing demand deposits	4,992,118						4,892,271						5,161,802
Other liabilities	283,724						246,395						281,442
Stockholders’ equity	3,184,847						3,165,138						3,046,358
Total liabilities and stockholders’ equity	$	29,964,027					$	29,198,906					$	28,968,372
Interest rate spread					2.67	%					2.69	%					2.68	%
Net free funds					0.17	%					0.14	%					0.09	%
Fully tax-equivalent net interest income and net interest margin			$	195,466	2.84	%			$	189,103	2.83	%			$	183,783	2.77	%
Fully tax-equivalent adjustment			5,344						5,284						5,249
Net interest income			$	190,122					$	183,819					$	178,534


(1)	The yield on tax-exempt loans and securities is computed on a fully tax-equivalent basis using a tax rate of 35% for all periods presented and is net of the effects of certain disallowed interest deductions.


(2)	Nonaccrual loans and loans held for sale have been included in the average balances.


(3)	Interest income includes net loan fees.

Notable Contributions to the Change in Net Interest Income


•	Net interest income in the consolidated statements of income (which excludes the fully tax-equivalent adjustment) was $554 million for the first nine months of 2017 compared to $527 million for the first nine months of 2016. See sections Interest Rate Risk and Quantitative and Qualitative Disclosures about Market Risk, for a discussion of interest rate risk and market risk.


•	Fully tax-equivalent net interest income of $570 million for the first nine months of 2017 was $27 million higher than the first nine months of 2016.

•

Average earning assets of $26.9 billion for the first nine months of 2017 were $958 million, or 4%, higher than the first nine months of 2016. Average loans increased $960 million, or 5%, primarily due to an $855 million increase in residential mortgage loans and a $319 million increase in commercial real estate lending, partially offset by decreases in other retail loans and commercial and business lending.


•	Average interest-bearing liabilities of $21.0 billion for the first nine months of 2017 were up $871 million, or 4%, versus the first nine months of 2016. On average, interest-bearing deposits increased $1.1 billion and short-term funding decreased $292 million to $1.1 billion from the first nine months of 2016.


•	The net interest margin for the first nine months of 2017 was 2.83%, compared to 2.80% for the first nine months of 2016. The increase was primarily driven by a 4 basis-point ("bp") expansion in the net free funds benefit as the value of noninterest-bearing deposits increases as a result of Federal Funds rate increases.


•	For the first nine months of 2017, loan yields increased 26 bps to 3.63% compared to the first nine months of 2016. The yield on investment securities and other short-term investments increased 3 bp to 2.40%.


•	The cost of interest-bearing liabilities was 0.65% for the first nine months of 2017, which was 23 bps higher than the first nine months of 2016. The increase was primarily due to a 21 bp increase in the cost of average interest-bearing deposits (to 0.52%) and a 48 bp increase in the cost of short-term funding (to 0.73%), both primarily due to increases in the Federal Reserve interest rate.


•	The Federal Reserve increased the targeted federal funds rate on June 14, 2017, to a range of 1.00% to 1.25% from 0.75% to 1.00%. The Federal Reserve has indicated that it expects gradual increases in the Federal Funds rate. However, the timing and magnitude of any such increases are uncertain and will depend on domestic and global economic conditions.

Provision for Credit Losses

The provision for credit losses (which includes the provision for loan losses and the provision for unfunded commitments) for the nine months ended September 30, 2017 was $26 million, compared to $55 million for the nine months ended September 30, 2016. Net charge offs were $29 million (representing 0.19% of average loans) for the nine months ended September 30, 2017, compared to $56 million (representing 0.38% of average loans) for the nine months ended September 30, 2016. The ratio of the allowance for loan losses to total loans was 1.32% for September 30, 2017 and 1.36% for September 30, 2016.

The provision for credit losses is predominantly a function of the Corporation’s reserving methodology and judgments as to other qualitative and quantitative factors used to determine the appropriate level of the allowance for loan losses and the allowance for unfunded commitments, which focuses on changes in the size and character of the loan portfolio, changes in levels of impaired and other nonaccrual loans, historical losses and delinquencies in each portfolio category, the level of loans sold or transferred to held for sale, the risk inherent in specific loans, concentrations of loans to specific borrowers or industries, existing economic conditions, the fair value of underlying collateral, and other factors which could affect potential credit losses. See additional discussion under sections, Loans, Credit Risk, Nonperforming Assets, and Allowance for Credit Losses.

Noninterest Income

Table 3 Noninterest Income



							YTD % Change																3Q17 Change vs
($ in Thousands, except AUM)	YTD Sep 2017			YTD Sep 2016			YTD % Change		3Q17			2Q17			1Q17			4Q16		3Q16			2Q17		3Q16
Trust service fees	$	37,066		$	34,656		7	%	$	12,785		$	12,346		$	11,935		$	12,211	$	11,700		4	%	9	%
Service charges on deposit accounts	48,654			50,162			(3	)%	16,268			16,030			16,356			16,447		17,445			1	%	(7	)%
Card-based and other nondeposit fees	38,848			37,485			4	%	12,619			13,764			12,465			12,592		12,777			(8	)%	(1	)%
Insurance commissions	62,288			62,818			(1	)%	19,815			20,853			21,620			17,977		19,431			(5	)%	2	%
Brokerage and annuity commissions	13,071			12,047			9	%	4,392			4,346			4,333			4,188		4,155			1	%	6	%
Subtotal ("fee-based revenue")	199,927			197,168			1	%	65,879			67,339			66,709			63,415		65,508			(2	)%	1	%
Mortgage banking income	24,112			38,190			(37	)%	9,147			7,692			7,273			12,058		21,903			19	%	(58	)%
Mortgage servicing rights expense	7,921			11,628			(32	)%	2,562			2,665			2,694			499		3,612			(4	)%	(29	)%
Mortgage banking, net	16,191			26,562			(39	)%	6,585			5,027			4,579			11,559		18,291			31	%	(64	)%
Capital market fees, net	12,535			14,343			(13	)%	4,610			4,042			3,883			7,716		7,012			14	%	(34	)%
Bank and corporate owned life insurance income	13,094			11,033			19	%	6,580			3,899			2,615			3,338		3,290			69	%	100	%
Other	6,746			6,140			10	%	2,254			2,213			2,279			2,379		2,180			2	%	3	%
Subtotal	248,493			255,246			(3	)%	85,908			82,520			80,065			88,407		96,281			4	%	(11	)%
Asset gains (losses), net	(716		)	(853		)	(16	)%	(16		)	(466		)	(234		)	767		(1,034		)	(97	)%	(98	)%
Investment securities gains (losses), net	359			6,201			(94	)%	3			356			—			3,115		(13		)	(99	)%	(123	)%
Total noninterest income	$	248,136		$	260,594		(5	)%	$	85,895		$	82,410		$	79,831		$	92,289	$	95,234		4	%	(10	)%
Mortgage loans originated for sale during period	$	466,135		$	983,930		(53	)%	$	245,851		$	119,004		$	101,280		$	287,194	$	466,092		107	%	(47	)%
Mortgage loan settlements during period	$	551,696		$	1,147,278		(52	)%	$	187,568		$	167,550		$	196,578		$	395,382	$	655,298		12	%	(71	)%
Trust assets under management ("AUM"), at market value^(a)	$	9,243		$	8,179		13	%	$	9,243		$	8,997		$	8,716		$	8,302	$	8,179		3	%	13	%


(a)	AUM $ in millions

Notable Contributions to the Change in Noninterest Income


•	Fee-based revenue was $200 million, an increase of $3 million (1%) compared to the first nine months of 2016. Within fee based revenue, trust service fees increased $2 million, primarily due to an increase in assets under management.


•	Net mortgage banking income for the first nine months of 2017 was $16 million, down $10 million (39%) from the first nine months of 2016, primarily due to portfolio loan sales during the third quarter of 2016.


•	Capital market fees, net, was $13 million for the first nine months of 2017, down $2 million (13%), driven primarily by decreased syndication fee revenue.


•	Bank and corporate owned life insurance income was $13 million for the first nine months of 2017, up $2 million from the first nine months of 2016, driven by increased policy payouts.


•	Net investment securities gains were down $6 million for the first nine months of 2017, due to $6 million gain on the sale of FNMA and FHLMC securities during the first nine months of 2016.

Noninterest Expense

Table 4 Noninterest Expense



																								3Q17 Change vs
($ in Thousands)	YTD Sep 2017			YTD Sep 2016			YTD % Change		3Q17			2Q17			1Q17			4Q16			3Q16			2Q17		3Q16
Personnel expense	$	314,954		$	307,346		2	%	$	105,852		$	104,683		$	104,419		$	107,491		$	103,819		1	%	2	%
Occupancy	40,345			42,379			(5	)%	12,294			12,832			15,219			13,690			15,362			(4	)%	(20	)%
Equipment	15,951			16,161			(1	)%	5,232			5,234			5,485			5,328			5,319			—	%	(2	)%
Technology	45,126			42,887			5	%	15,233			15,473			14,420			14,413			14,173			(2	)%	7	%
Business development and advertising	20,751			20,053			3	%	7,764			7,152			5,835			6,298			5,251			9	%	48	%
Other intangible amortization	1,459			1,568			(7	)%	450			496			513			525			525			(9	)%	(14	)%
Loan expense	8,924			10,198			(12	)%	3,330			2,974			2,620			3,443			3,535			12	%	(6	)%
Legal and professional fees	16,125			14,685			10	%	6,248			5,711			4,166			5,184			4,804			9	%	30	%
Foreclosure / OREO expense	3,593			4,167			(14	)%	906			1,182			1,505			677			960			(23	)%	(6	)%
FDIC expense	23,800			25,500			(7	)%	7,800			8,000			8,000			9,250			9,000			(3	)%	(13	)%
Other expense	36,406			38,701			(6	)%	12,318			12,579			11,509			12,616			12,566			(2	)%	(2	)%
Total noninterest expense	$	527,434		$	523,645		1	%	$	177,427		$	176,316		$	173,691		$	178,915		$	175,314		1	%	1	%
Personnel expense to total noninterest expense	60		%	59		%			60		%	59		%	60		%	60		%	59		%
Average full-time equivalent employees	4,368			4,422					4,384			4,352			4,370			4,439			4,477

Notable Contributions to the Change in Noninterest Expense


•	Personnel expense (which includes salary-related expenses and fringe benefit expenses) was $315 million for the first nine months of 2017, up $8 million (2%) from the first nine months of 2016, primarily due to increased health insurance cost and incentive plan estimates.

•

Nonpersonnel noninterest expense on a combined basis was $212 million, down $4 million (2%) compared to the first nine months of 2016. Occupancy expense decreased $2 million (5%) in the first nine months of 2017, primarily driven by ongoing internal consolidation efforts. FDIC expense was $24 million for the first nine months of 2017, down $2 million (7%) from the first nine months of 2016, primarily driven by risk-weighted asset strategies deployed by the Corporation.

Income Taxes

The Corporation recognized income tax expense of $70 million for the nine months ended September 30, 2017, compared to income tax expense of $64 million for the nine months ended September 30, 2016. The change in income tax expense was due primarily to an increase in pre-tax book income. The effective tax rate was 27.99% for the first nine months of 2017, compared to an effective tax rate of 30.47% for the first nine months of 2016, reflecting a change in accounting standards related to stock compensation and a recent favorable tax court ruling.

Income tax expense recorded in the consolidated statements of income involves the interpretation and application of certain accounting pronouncements and federal and state tax laws and regulations, and is, therefore, considered a critical accounting policy. The Corporation is subject to examination by various taxing authorities. Examination by taxing authorities may impact the amount of tax expense and / or reserve for uncertainty in income taxes if their interpretations differ from those of management, based on their judgments about information available to them at the time of their examinations. See section Critical Accounting Policies, in the Corporation’s 2016 Annual Report on Form 10-K for additional information on income taxes.

Balance Sheet Analysis


•	At September 30, 2017, total assets were $30.1 billion, up $925 million (3%) from December 31, 2016 and up $912 million (3%) from September 30, 2016.


•	Loans of $20.9 billion at September 30, 2017 were up $877 million (4%) from December 31, 2016 and were up $1.1 billion (5%) from September 30, 2016. See section Loans for additional information on loans.


•	At September 30, 2017, total deposits of $22.3 billion were up $445 million (2%) from December 31, 2016 and were up $586 million (3%) from September 30, 2016. See section Deposits and Customer Funding for additional information on deposits.


•	Short and long-term funding of $4.2 billion increased $358 million (9%) from December 31, 2016 and increased $210 million (5%) from September 30, 2016.

Loans

Table 5 Period End Loan Composition




	September 30, 2017				June 30, 2017				March 31, 2017				December 31, 2016				September 30, 2016
	Amount		% of Total		Amount		% of Total		Amount		% of Total		Amount		% of Total		Amount		% of Total
	($ in Thousands)
Commercial and industrial	$	6,534,660	31	%	$	6,571,000	32	%	$	6,300,646	31	%	$	6,489,014	32	%	$	6,721,557	34	%
Commercial real estate — owner occupied	827,064		4	%	845,336		4	%	878,391		4	%	897,724		5	%	892,678		4	%
Commercial and business lending	7,361,724		35	%	7,416,336		36	%	7,179,037		35	%	7,386,738		37	%	7,614,235		38	%
Commercial real estate — investor	3,345,536		16	%	3,329,585		16	%	3,415,355		17	%	3,574,732		18	%	3,530,370		18	%
Real estate construction	1,552,135		8	%	1,651,805		8	%	1,553,205		8	%	1,432,497		7	%	1,314,431		7	%
Commercial real estate lending	4,897,671		24	%	4,981,390		24	%	4,968,560		25	%	5,007,229		25	%	4,844,801		25	%
Total commercial	12,259,395		59	%	12,397,726		60	%	12,147,597		60	%	12,393,967		62	%	12,459,036		63	%
Residential mortgage	7,408,471		35	%	7,115,457		34	%	6,715,282		33	%	6,332,327		31	%	6,034,166		30	%
Home equity	890,130		4	%	897,111		4	%	911,969		5	%	934,443		5	%	951,594		5	%
Other consumer	373,464		2	%	372,775		2	%	372,835		2	%	393,979		2	%	399,209		2	%
Total consumer	8,672,065		41	%	8,385,343		40	%	8,000,086		40	%	7,660,749		38	%	7,384,969		37	%
Total loans	$	20,931,460	100	%	$	20,783,069	100	%	$	20,147,683	100	%	$	20,054,716	100	%	$	19,844,005	100	%

The Corporation has long-term guidelines relative to the proportion of commercial and business, commercial real estate, and Consumer loans within the overall loan portfolio, with each targeted to represent 30-40% of the overall loan portfolio. The targeted long-term guidelines were unchanged during 2016 and the first nine months of 2017. Furthermore, certain sub-asset classes within the respective portfolios were further defined and dollar limitations were placed on these sub-portfolios. These guidelines and limits are reviewed quarterly and approved annually by the Enterprise Risk Committee of the Corporation’s Board of Directors. These guidelines and limits are designed to create balance and diversification within the loan portfolios.

Credit Risk

An active credit risk management process is used for commercial loans to ensure that sound and consistent credit decisions are made. Credit risk is controlled by detailed underwriting procedures, comprehensive loan administration, and periodic review of borrowers’ outstanding loans and commitments. Borrower relationships are formally reviewed and graded on an ongoing basis for early identification of potential problems. Further analysis by customer, industry, and geographic location are performed to monitor trends, financial performance, and concentrations. See Note 7 Loans, for additional information on managing overall credit quality.

The loan portfolio is widely diversified by types of borrowers, industry groups, and market areas within our branch footprint. Significant loan concentrations are considered to exist when there are amounts loaned to numerous borrowers engaged in similar activities that would cause them to be similarly impacted by economic or other conditions. At September 30, 2017, no significant concentrations existed in the Corporation’s portfolio in excess of 10% of total loans.

Commercial and business lending: The commercial and business lending classification primarily includes commercial loans to large corporations, middle market companies and small businesses and lease financing. At September 30, 2017, the largest industry group within the commercial and business lending category was the manufacturing sector, which represented 6% of total loans and 16% of the total commercial and business lending portfolio. The next largest industry group within the commercial and business lending category included the power and utilities portfolio, which represented 5% of total loans and represented 14% of the total commercial and business lending portfolio at September 30, 2017. The remaining commercial and business lending portfolio is spread over a diverse range of industries, none of which exceed 5% of total loans. The credit risk related to commercial loans is largely influenced by general economic conditions and the resulting impact on a borrower’s operations or on the value of underlying collateral, if any. Currently, a higher risk segment of the commercial and business lending portfolio is loans to borrowers supporting oil and gas exploration and production, which are further discussed under oil and gas lending below.

Oil and gas lending: The Corporation provides reserve based loans to oil and gas exploration and production firms. The Corporation's oil and gas lending team is based in Houston and focuses on serving the funding needs of small and mid-sized companies in the upstream oil and gas business. The oil and gas loans are generally first lien, reserve-based, and borrowing base dependent lines of credit. A small portion of the portfolio is in a second lien position to which the Corporation also holds the first lien position. The portfolio is diversified across all major U.S. geographic basins. The portfolio is diversified by product line with approximately 58% in oil and 42% in gas at September 30, 2017. Borrowing base re-determinations for the portfolio are completed at least twice a year and are based on detailed engineering reports and discounted cash flow analysis.

The following table summarizes information about the Corporation's oil and gas loan portfolio.

Table 6 Oil and Gas Loan Portfolio



	September 30, 2017			June 30, 2017			March 31, 2017			December 31, 2016			September 30, 2016
	($ in Millions)
Pass	$	446		$	411		$	405		$	426		$	351
Special mention	—			39			8			20			47
Potential problem	39			37			78			75			171
Nonaccrual	92			114			134			147			127
Total oil and gas related loans	$	577		$	601		$	625		$	668		$	696
Quarter net charge offs	$	8		$	12		$	6		$	6		$	22
Oil and gas related allowance	$	30		$	33		$	42		$	38		$	38
Oil and gas related allowance ratio	5.2		%	5.4		%	6.7		%	5.7		%	5.5		%

Lower market pricing and increased market volatility has led to downward migration within the portfolio. At September 30, 2017, nonaccrual oil and gas related loans totaled approximately $92 million, representing 16% of the oil and gas loan portfolio, a decrease of $55 million from December 31, 2016.

Commercial real estate - investor: Commercial real estate-investor is comprised of loans secured by various non-owner occupied or investor income producing property types. At September 30, 2017, the largest property type exposures within the commercial real estate-investor portfolio were loans secured by multi-family properties, which represented 5% of total loans and 29% of the total commercial real estate-investor portfolio and loans secured by retail properties which represented 5% of total loans and 28% of the total commercial real estate-investor portfolio. The remaining commercial real estate-investor portfolio is spread over various other property types, none of which exceed 5% of total loans. Of the exposure in the Corporation's commercial real estate retailer portfolio, our largest tenant exposure is approximately 5%, spread over six loans, to a national investment grade grocer. Credit risk is managed in a similar manner to commercial and business lending by employing sound underwriting guidelines, lending primarily to borrowers in local markets and businesses, periodically evaluating the underlying collateral, and formally reviewing the borrower’s financial soundness and relationship on an ongoing basis.

Real estate construction: Real estate construction loans are primarily short-term or interim loans that provide financing for the acquisition or development of commercial income properties, multi-family projects or residential development, both single family and condominium. Real estate construction loans are made to developers and project managers who are generally well known to the Corporation and have prior successful project experience. The credit risk associated with real estate construction loans is generally confined to specific geographic areas but is also influenced by general economic conditions. The Corporation controls the credit risk on these types of loans by making loans in familiar markets to developers, reviewing the merits of individual projects, controlling loan structure, and monitoring project progress and construction advances.

The Corporation’s current lending standards for commercial real estate and real estate construction lending are determined by property type and specifically address many criteria, including: maximum loan amounts, maximum loan-to-value (“LTV”), requirements for pre-leasing and / or presales, minimum borrower equity, and maximum loan to cost. Currently, the maximum

standard for LTV is 80%, with lower limits established for certain higher risk types, such as raw land that has a 50% LTV maximum. The Corporation’s LTV guidelines are in compliance with regulatory supervisory limits. In most cases, for real estate construction loans, the loan amounts include interest reserves, which are built into the loans and sized to fund loan payments through construction and lease up and / or sell out.

Table 7 Commercial Loan Distribution and Interest Rate Sensitivity




September 30, 2017	Within 1 Year^(a)			1-5 Years			After 5 Years			Total			% of Total
	($ in Thousands)
Commercial and industrial	$	5,860,886		$	469,480		$	204,294		$	6,534,660		53	%
Commercial real estate — investor	2,457,622			827,405			60,509			3,345,536			27	%
Commercial real estate — owner occupied	409,936			307,477			109,651			827,064			7	%
Real estate construction	1,428,540			94,874			28,721			1,552,135			13	%
Total	$	10,156,984		$	1,699,236		$	403,175		$	12,259,395		100	%
Fixed rate	$	4,357,609		$	743,284		$	310,221		$	5,411,114		44	%
Floating or adjustable rate	5,799,375			955,952			92,954			6,848,281			56	%
Total	$	10,156,984		$	1,699,236		$	403,175		$	12,259,395		100	%
Percent by maturity distribution	83		%	14		%	3		%	100		%


(a)	Demand loans, past due loans, and overdrafts are reported in the “Within 1 Year” category.

The total commercial loans that were floating or adjustable rate was $6.8 billion (56%) at September 30, 2017. Including the $4.4 billion of fixed rate loans due within one year, 91% of the commercial loan portfolio noted above matures, re-prices, or resets within one year.

Residential mortgages: Residential mortgage loans are primarily first lien home mortgages with a maximum loan to collateral value without credit enhancement (e.g. private mortgage insurance) of 80%. At September 30, 2017, the residential mortgage portfolio was comprised of $2.5 billion of fixed-rate residential real estate mortgages and $4.9 billion of variable-rate residential real estate mortgages, compared to $1.8 billion of fixed-rate mortgages and $4.5 billion variable-rate mortgages at December 31, 2016. The residential mortgage portfolio is focused primarily in our three-state branch footprint, with approximately 88% of the outstanding loan balances in our branch footprint at September 30, 2017. As part of management’s historical practice of originating and servicing residential mortgage loans, generally the Corporation’s 30 year, agency conforming, fixed-rate residential real estate mortgage loans are sold in the secondary market with servicing rights retained. During the first half of 2017, the Corporation retained substantially all of its 30 year production through May. Beginning in June, the Corporation resumed originating for sale. The majority of the on balance sheet residential mortgage portfolio consists of hybrid, adjustable rate mortgage loans with initial fixed rate terms of 3, 5, 7, or 10 years. The Corporation also generally retains certain fixed-rate residential real estate mortgages in its loan portfolio, including retail and private banking jumbo mortgages and CRA-related mortgages. As part of management’s historical practice of originating and servicing residential mortgage loans, generally the Corporation’s 30 year, agency conforming, fixed-rate residential real estate mortgage loans were sold in the secondary market with servicing rights retained. Subject to management’s analysis of the current interest rate environment, among other market factors, the Corporation may choose to retain 30 year mortgage loan production on its balance sheet.

The Corporation’s underwriting and risk-based pricing guidelines for residential mortgage loans include minimum borrower FICO and maximum LTV of the property securing the loan. Residential mortgage products generally are underwritten using FHLMC and FNMA secondary marketing guidelines.

Home equity: Home equity consists of both home equity lines of credit and closed-end home equity loans, approximately 24% are first lien positions. Home equity loans and lines in a junior position at September 30, 2017 included approximately 35% for which the Corporation also owned or serviced the related first lien loan and approximately 65% where the Corporation did not own or service the related first lien loan.

The Corporation’s credit risk monitoring guidelines for home equity is based on an ongoing review of loan delinquency status, as well as a quarterly review of FICO score deterioration and property devaluation. The Corporation does not routinely obtain appraisals on performing loans to update LTV ratios after origination; however, the Corporation monitors the local housing markets by reviewing the various home price indices and incorporates the impact of the changing market conditions in its ongoing credit monitoring process. For junior lien home equity loans, the Corporation is unable to track the performance of the first lien loan if it does not own or service the first lien loan. However, the Corporation obtains a refreshed FICO score on a quarterly basis and monitors this as part of its assessment of the home equity portfolio.

The Corporation’s underwriting and risk-based pricing guidelines for home equity lines and loans consist of a combination of both borrower FICO and the original cumulative LTV against the property securing the loan. Currently, our policy sets the maximum

acceptable LTV at 90% and the minimum acceptable FICO at 670. The Corporation's current home equity line of credit offering is priced based on floating rate indices and generally allows 10 years of interest-only payments followed by a 20-year amortization of the outstanding balance. The Corporation has significantly curtailed its offerings of fixed-rate, closed end home equity loans. The loans in the Corporation's portfolio generally have an original term of 20 years with principal and interest payments required.

Based upon outstanding balances at September 30, 2017, the following table presents the periods when home equity lines of credit revolving periods are scheduled to end.

Table 8 Home Equity Line of Credit - Revolving Period End Dates



	$ in Thousands		% of Total
Less than 5 years	$	56,613	7	%
5 to 10 years	214,719		26	%
Over 10 years	542,371		67	%
Total home equity revolving lines of credit	$	813,703	100	%

Other consumer: Other consumer consists of student loans, short-term and other personal installment loans and credit cards. The Corporation had $190 million and $214 million of student loans at September 30, 2017, and December 31, 2016, respectively, the majority of which are government guaranteed. Credit risk for non-government guaranteed student, short-term and personal installment loans and credit cards is influenced by general economic conditions, the characteristics of individual borrowers, and the nature of the loan collateral. Risks of loss are generally on smaller average balances per loan spread over many borrowers. Once charged off, there is usually less opportunity for recovery of these smaller consumer loans. Credit risk is primarily controlled by reviewing the creditworthiness of the borrowers, monitoring payment histories, and taking appropriate collateral and guarantee positions. The student loan portfolio is in run-off and no new student loans are being originated.

Nonperforming Assets

Management is committed to a proactive nonaccrual and problem loan identification philosophy. This philosophy is implemented through the ongoing monitoring and review of all pools of risk in the loan portfolio to ensure that problem loans are identified quickly and the risk of loss is minimized. Table 9 provides detailed information regarding nonperforming assets, which include nonaccrual loans and other real estate owned, and other nonperforming assets.

Table 9 Nonperforming Assets



	September 30, 2017			June 30, 2017			March 31, 2017			December 31, 2016			September 30, 2016
	($ in Thousands)
Nonperforming assets
Commercial and industrial	$	122,284		$	141,475		$	164,891		$	183,371		$	205,902
Commercial real estate — owner occupied	15,598			15,800			17,925			9,544			6,995
Commercial and business lending	137,882			157,275			182,816			192,915			212,897
Commercial real estate — investor	3,543			7,206			8,273			18,051			8,028
Real estate construction	1,540			1,717			1,247			844			864
Commercial real estate lending	5,083			8,923			9,520			18,895			8,892
Total commercial	142,965			166,198			192,336			211,810			221,789
Residential mortgage	54,654			51,975			54,183			50,236			53,475
Home equity	12,639			13,482			13,212			13,001			14,347
Other consumer	259			233			260			256			300
Total consumer	67,552			65,690			67,655			63,493			68,122
Total nonaccrual loans	210,517			231,888			259,991			275,303			289,911
Commercial real estate owned	5,098			4,825			5,599			7,176			9,758
Residential real estate owned	3,385			2,957			1,941			3,098			3,006
Bank properties real estate owned	—			—			—			—			1,735
Other real estate owned (“OREO”)	8,483			7,782			7,540			10,274			14,499
Other nonperforming assets	7,418			7,418			7,418			7,418			—
Total nonperforming assets (“NPAs”)	$	226,418		$	247,088		$	274,949		$	292,995		$	304,410
Accruing loans past due 90 days or more
Commercial	$	308		$	248		$	258		$	236		$	254
Consumer	1,303			1,287			1,462			1,377			1,257
Total accruing loans past due 90 days or more	$	1,611		$	1,535		$	1,720		$	1,613		$	1,511
Restructured loans (accruing)
Commercial	$	51,259		$	50,634		$	51,274		$	53,022		$	53,410
Consumer	25,919			26,691			27,785			26,835			26,660
Total restructured loans (accruing)	$	77,178		$	77,325		$	79,059		$	79,857		$	80,070
Nonaccrual restructured loans (included in nonaccrual loans)	$	33,520		$	51,715		$	78,902		$	29,385		$	31,758
Ratios
Nonaccrual loans to total loans	1.01		%	1.12		%	1.29		%	1.37		%	1.46		%
NPAs to total loans plus OREO	1.08		%	1.19		%	1.36		%	1.46		%	1.53		%
NPAs to total assets	0.75		%	0.83		%	0.94		%	1.01		%	1.04		%
Allowance for loan losses to nonaccrual loans	131.37		%	121.22		%	108.72		%	101.10		%	92.97		%

Table 9 Nonperforming Assets (continued)



	September 30, 2017		June 30, 2017		March 31, 2017		December 31, 2016		September 30, 2016
	($ in Thousands)
Accruing loans 30-89 days past due
Commercial and industrial	$	1,378	$	1,255	$	1,675	$	1,413	$	950
Commercial real estate — owner occupied	1,522		1,284		970		1,384		869
Commercial and business lending	2,900		2,539		2,645		2,797		1,819
Commercial real estate — investor	1,109		899		1,122		931		630
Real estate construction	700		135		431		369		402
Commercial real estate lending	1,809		1,034		1,553		1,300		1,032
Total commercial	4,709		3,573		4,198		4,097		2,851
Residential mortgage	8,870		9,165		7,243		8,142		6,697
Home equity	7,191		5,924		4,512		5,849		5,473
Other consumer	1,686		1,746		1,658		3,189		2,046
Total consumer	17,747		16,835		13,413		17,180		14,216
Total accruing loans 30-89 days past due	$	22,456	$	20,408	$	17,611	$	21,277	$	17,067
Potential problem loans
Commercial and industrial	$	153,779	$	142,607	$	218,930	$	227,196	$	351,290
Commercial real estate — owner occupied	57,468		60,724		58,994		64,524		47,387
Commercial and business lending	211,247		203,331		277,924		291,720		398,677
Commercial real estate — investor	46,770		48,569		49,217		51,228		36,765
Real estate construction	118		8,901		10,141		2,465		1,929
Commercial real estate lending	46,888		57,470		59,358		53,693		38,694
Total commercial	258,135		260,801		337,282		345,413		437,371
Residential mortgage	650		1,576		2,155		5,615		3,226
Home equity	124		208		220		114		78
Total consumer	774		1,784		2,375		5,729		3,304
Total potential problem loans	$	258,909	$	262,585	$	339,657	$	351,142	$	440,675

Nonaccrual loans: Nonaccrual loans are considered to be one indicator of potential future loan losses. See Note 7 Loans, of the notes to consolidated financial statements for additional nonaccrual loan disclosures. The ratio of nonaccrual loans to total loans at September 30, 2017 was 1.01%, as compared to 1.37% at December 31, 2016 and 1.46% at September 30, 2016. See also sections Credit Risk and Allowance for Credit Losses.

Accruing loans past due 90 days or more: Loans past due 90 days or more but still accruing interest are classified as such where the underlying loans are both well secured (the collateral value is sufficient to cover principal and accrued interest) and are in the process of collection. Accruing loans 90 days or more past due at September 30, 2017 were relatively unchanged from both December 31, 2016 and September 30, 2016.

Restructured loans: Loans are considered restructured loans if concessions have been granted to borrowers that are experiencing financial difficulty. See also Note 7 Loans, of the notes to consolidated financial statements for additional restructured loans disclosures.

Potential problem loans: The level of potential problem loans is another predominant factor in determining the relative level of risk in the loan portfolio and in determining the appropriate level of the allowance for loan losses. Potential problem loans are generally defined by management to include loans rated as substandard by management but that are not considered impaired (i.e., nonaccrual loans and accruing troubled debt restructurings); however, there are circumstances present to create doubt as to the ability of the borrower to comply with present repayment terms. The decision of management to include performing loans in potential problem loans does not necessarily mean that the Corporation expects losses to occur, but that management recognizes a higher degree of risk associated with these loans.

OREO: Management actively seeks to ensure OREO properties held are monitored to minimize the Corporation’s risk of loss.

Other nonperforming assets: The asset represents the Bank's ownership interest in a profit participation agreement in an entity created to own certain oil and gas assets obtained as a result of bankruptcy and liquidation of a borrower in partial satisfaction of their loan.

Allowance for Credit Losses

Credit risks within the loan portfolio are inherently different for each loan type. Credit risk is controlled and monitored through the use of lending standards, a thorough review of potential borrowers, and ongoing review of loan payment performance. Active asset quality administration, including early problem loan identification and timely resolution of problems, aids in the management of credit risk and minimization of loan losses. Credit risk management for each loan type is discussed in the section entitled Credit Risk. See Note 7 Loans, for additional disclosures on the allowance for credit losses.

To assess the appropriateness of the allowance for loan losses, an allocation methodology is applied by the Corporation which focuses on evaluation of many factors, including but not limited to: evaluation of facts and issues related to specific loans, management’s ongoing review and grading of the loan portfolio, consideration of historical loan loss and delinquency experience on each portfolio category, trends in past due and nonaccrual loans, the level of potential problem loans, the risk characteristics of the various classifications of loans, changes in the size and character of the loan portfolio, concentrations of loans to specific borrowers or industries, existing economic conditions, the fair value of underlying collateral, and other qualitative and quantitative factors which could affect potential credit losses. Assessing these factors involves significant judgment. Because each of the criteria used is subject to change, the allowance for loan losses is not necessarily indicative of the trend of future loan losses in any particular category. Therefore, management considers the allowance for loan losses a critical accounting policy—See section Critical Accounting Policies, in the Corporation’s 2016 Annual Report on Form 10-K for additional information on the allowance for loan losses. See section, Nonperforming Assets, for a detailed discussion on asset quality. See also Note 7 Loans, of the notes to consolidated financial statements for additional allowance for loan losses disclosures. Table 5 provides information on loan growth and period end loan composition, Table 9 provides additional information regarding nonperforming assets, and Table 10 and Table 11 provide additional information regarding activity in the allowance for loan losses.

The methodology used for the allocation of the allowance for loan losses at September 30, 2017 and December 31, 2016 was generally comparable, whereby the Corporation segregated its loss factors (used for both criticized and non-criticized loans) into a component primarily based on historical loss rates and a component primarily based on other qualitative factors that are probable to affect loan collectability. The allocation methodology consists of the following components: First, a valuation allowance estimate is established for specifically identified commercial and consumer loans determined by the Corporation to be impaired, using discounted cash flows, estimated fair value of underlying collateral, and / or other data available. Second, management allocates the allowance for loan losses with loss factors, for criticized loan pools by loan type as well as for non-criticized loan pools by loan type, primarily based on historical loss rates after considering loan type, historical loss and delinquency experience, and industry statistics. Loans that have been criticized are considered to have a higher risk of default than non-criticized loans, as circumstances were present to support the lower loan grade, warranting higher loss factors. The loss factors applied in the methodology are periodically re-evaluated and adjusted to reflect changes in historical loss levels or other risks. Lastly, management allocates allowance for loan losses to absorb unrecognized losses that may not be provided for by the other components due to other factors evaluated by management, such as limitations within the credit risk grading process, known current economic or business conditions that may not yet show in trends, industry or other concentrations with current issues that impose higher inherent risks than are reflected in the loss factors, and other relevant considerations. The total allowance is available to absorb losses from any segment of the loan portfolio.

Table 10 Allowance for Credit Losses



	YTD
	Sep 2017			Sep 2016			September 30, 2017			June 30, 2017			March 31, 2017			December 31, 2016			September 30, 2016
	($ in Thousands)
Allowance for Loan Losses
Balance at beginning of period	$	278,335		$	274,264		$	281,101		$	282,672		$	278,335		$	269,540		$	267,780
Provision for loan losses	27,000			51,000			6,000			11,000			10,000			18,000			20,000
Charge offs	(41,957		)	(74,830		)	(14,727		)	(15,376		)	(11,854		)	(11,609		)	(28,964		)
Recoveries	13,173			19,106			4,177			2,805			6,191			2,404			10,724
Net charge offs	(28,784		)	(55,724		)	(10,550		)	(12,571		)	(5,663		)	(9,205		)	(18,240		)
Balance at end of period	$	276,551		$	269,540		$	276,551		$	281,101		$	282,672		$	278,335		$	269,540
Allowance for Unfunded Commitments
Balance at beginning of period	$	25,400		$	24,400		$	25,400		$	24,400		$	25,400		$	28,400		$	27,400
Provision for unfunded commitments	(1,000		)	4,000			(1,000		)	1,000			(1,000		)	(3,000		)	1,000
Balance at end of period	$	24,400		$	28,400		$	24,400		$	25,400		$	24,400		$	25,400		$	28,400
Allowance for credit losses^(a)	$	300,951		$	297,940		$	300,951		$	306,501		$	307,072		$	303,735		$	297,940
Provision for credit losses^(b)	$	26,000		$	55,000		$	5,000		$	12,000		$	9,000		$	15,000		$	21,000
Net loan (charge offs) recoveries
Commercial and industrial	$	(24,856	)	$	(49,907	)	$	(9,442	)	$	(11,046	)	$	(4,368	)	$	(6,566	)	$	(16,407	)
Commercial real estate — owner occupied	75			(217		)	13			43			19			(221		)	(154		)
Commercial and business lending	(24,781		)	(50,124		)	(9,429		)	(11,003		)	(4,349		)	(6,787		)	(16,561		)
Commercial real estate — investor	(585		)	115			55			(126		)	(514		)	5			(564		)
Real estate construction	(165		)	(269		)	(150		)	(26		)	11			(86		)	(22		)
Commercial real estate lending	(750		)	(154		)	(95		)	(152		)	(503		)	(81		)	(586		)
Total commercial	(25,531		)	(50,278		)	(9,524		)	(11,155		)	(4,852		)	(6,868		)	(17,147		)
Residential mortgage	(718		)	(2,529		)	(26		)	(564		)	(128		)	(1,048		)	(540		)
Home equity	140			(704		)	(87		)	54			173			(491		)	125
Other consumer	(2,675		)	(2,213		)	(913		)	(906		)	(856		)	(798		)	(678		)
Total consumer	(3,253		)	(5,446		)	(1,026		)	(1,416		)	(811		)	(2,337		)	(1,093		)
Total net charge offs	$	(28,784	)	$	(55,724	)	$	(10,550	)	$	(12,571	)	$	(5,663	)	$	(9,205	)	$	(18,240	)
Ratios
Allowance for loan losses to total loans	1.32		%	1.36		%	1.32		%	1.35		%	1.40		%	1.39		%	1.36		%
Allowance for loan losses to net charge offs (annualized)	7.2x			3.6x			6.6x			5.6x			12.3x			7.6x			3.7x


(a)	Includes the allowance for loan losses and the allowance for unfunded commitments.


(b)	Includes the provision for loan losses and the provision for unfunded commitments.

Table 11 Annualized net (charge offs) recoveries^(a)



	YTD
(in basis points)	Sep 2017		Sep 2016		September 30, 2017		June 30, 2017		March 31, 2017		December 31, 2016		September 30, 2016

Net loan (charge offs) recoveries
Commercial and industrial	(52	)	(103	)	(58	)	(69	)	(28	)	(40	)	(98	)
Commercial real estate — owner occupied	1		(3	)	1		2		1		(10	)	(7	)
Commercial and business lending	(46	)	(91	)	(51	)	(60	)	(24	)	(36	)	(87	)
Commercial real estate — investor	(2	)	N/M		1		(2	)	(6	)	N/M		(6	)
Real estate construction	(1	)	(3	)	(4	)	(1	)	N/M		(3	)	(1	)
Commercial real estate lending	(2	)	N/M		(1	)	(1	)	(4	)	(1	)	(5	)
Total commercial	(28	)	(56	)	(31	)	(36	)	(16	)	(22	)	(55	)
Residential mortgage	(1	)	(6	)	N/M		(3	)	(1	)	(7	)	(3	)
Home equity	2		(10	)	(4	)	2		8		(21	)	5
Other consumer	(95	)	(72	)	(97	)	(98	)	(90	)	(80	)	(67	)
Total consumer	(5	)	(10	)	(5	)	(7	)	(4	)	(12	)	(6	)
Total net charge offs	(19	)	(38	)	(20	)	(25	)	(11	)	(18	)	(36	)


(a)	Annualized ratio of net charge offs to average loans by loan type.

N/M = Not Meaningful

At September 30, 2017, the allowance for credit losses was $301 million, compared to $304 million at December 31, 2016 and $298 million at September 30, 2016. At September 30, 2017, the allowance for loan losses to total loans was 1.32% and covered 131.37% of nonaccrual loans, compared to 1.39% and 101.10%, respectively, at December 31, 2016 and 1.36% and 92.97%, respectively, at September 30, 2016. Management believes the level of allowance for loan losses to be appropriate at September 30, 2017.

Notable Contributions to the Change in Allowance for Credit Loss

•

Total loans increased $877 million (4%) for the first nine months of 2017, including a $1.0 billion (13%) increase in total consumer. Compared to September 30, 2016, total loans increased $1.1 billion (5%), including a $1.3 billion (17%) increase in total consumer and a $53 million (1%) increase in commercial real estate lending, which was partially offset by a $253 million (3%) decrease in commercial and business lending. See section Loans for additional information on the changes in the loan portfolio and see section Credit Risk for discussion about credit risk management for each loan type.

•

Total nonaccrual loans decreased $65 million for the first nine months of 2017 and decreased $79 million from September 30, 2016, primarily due to migration in general commercial related credits and oil and gas related credits, respectively. See also Note 7 Loans, of the notes to consolidated financial statements and section Nonperforming Assets for additional disclosures on the changes in asset quality.


•	Potential problem loans decreased $92 million from December 31, 2016 and decreased $182 million from September 30, 2016, primarily due to improvements in general commercial related credits and migration in oil and gas related credits, respectively. See Table 9, for additional information on the changes in potential problem loans.


•	Net charge offs decreased $27 million from the first nine months of 2016, primarily due to decrease in the charge offs of oil and gas credits. See Table 10 and Table 11 for additional information regarding the activity in the allowance for loan losses.


•	The allowance for loan losses attributable to oil and gas related credits (included within the commercial and industrial allowance for loan losses) was $30 million at September 30, 2017, compared to $38 million at both December 31, 2016 and September 30, 2016. See also Oil and gas lending within the Credit Risk section for additional disclosure.

Deposits and Customer Funding

Table 12 Period End Deposit and Customer Funding Composition



($ in Thousands)	September 30, 2017				June 30, 2017				March 31, 2017				December 31, 2016				September 30, 2016
	Amount		% of Total		Amount		% of Total		Amount		% of Total		Amount		% of Total		Amount		% of Total
Noninterest-bearing demand	$	5,177,734	23	%	$	5,038,162	23	%	$	5,338,212	25	%	$	5,392,208	25	%	$	5,337,677	24	%
Savings	1,544,037		7	%	1,552,820		7	%	1,530,155		7	%	1,431,494		7	%	1,441,187		7	%
Interest-bearing demand	4,990,891		22	%	3,858,739		18	%	4,736,236		22	%	4,687,656		21	%	4,548,390		21	%
Money market	8,299,512		37	%	9,228,129		43	%	8,608,523		39	%	8,770,963		40	%	8,894,357		41	%
Brokered CDs	3,554		—	%	131,184		1	%	54,993		—	%	52,725		—	%	44,373		—	%
Other time	2,317,723		11	%	1,809,146		8	%	1,559,916		7	%	1,553,402		7	%	1,481,728		7	%
Total deposits	$	22,333,451	100	%	$	21,618,180	100	%	$	21,828,035	100	%	$	21,888,448	100	%	$	21,747,712	100	%
Customer funding^(a)	255,975				262,318				326,823				300,197				477,607
Total deposits and customer funding	$	22,589,426			$	21,880,498			$	22,154,858			$	22,188,645			$	22,225,319
Network transaction deposits^(b)	$	2,622,787			$	3,220,956			$	3,417,380			$	3,895,467			$	3,730,513
Net deposits and customer funding(total deposits and customer funding, excluding Brokered CDs and network transaction deposits)	$	19,963,085			$	18,528,358			$	18,682,485			$	18,240,453			$	18,450,433
Time deposits of more than $250,000	$	1,009,097			$	477,043			$	244,641			$	234,537			$	149,214

(a) Repurchase sweep agreements with customers from deposit accounts.

(b) Included above in interest-bearing demand and money market.


•	Deposits are the Corporation’s largest source of funds.


•	Total deposits increased $445 million (2%) from December 31, 2016, and increased $586 million (3%) from September 30, 2016.


•	Non-maturity deposit accounts, comprised of savings, money market, and demand (both interest and noninterest-bearing demand) accounts accounted for 90% of our total deposits at September 30, 2017.


•	Included in the above amounts were $2.6 billion of network deposits, primarily sourced from other financial institutions and intermediaries. These represented 12% of our total deposits at September 30, 2017.


•	Other time deposits increased $764 million (49%) from December 31, 2016, primarily due to an increase to CDs issued to public entities.

Liquidity

The objective of liquidity risk management is to ensure that the Corporation has the ability to generate sufficient cash or cash equivalents in a timely and cost effective manner to satisfy the cash flow requirements of depositors and borrowers and to meet its other commitments as they become due. The Corporation’s liquidity risk management process is designed to identify, measure, and manage the Corporation’s funding and liquidity risk to meet its daily funding needs in the ordinary course of business, as well as to address expected and unexpected changes in its funding requirements. The Corporation engages in various activities to manage its liquidity risk, including diversifying its funding sources, stress testing, and holding readily-marketable assets which can be used as a source of liquidity, if needed.

The Corporation performs dynamic scenario analysis in accordance with industry best practices. Measures have been established to ensure the Corporation has sufficient high quality short-term liquidity to meet cash flow requirements under stressed scenarios. In addition the Corporation also reviews static measures such as deposit funding as a percent of total assets and liquid asset levels. Strong capital ratios, credit quality, and core earnings are also essential to maintaining cost effective access to wholesale funding markets. At September 30, 2017, the Corporation was in compliance with its internal liquidity objectives and has sufficient asset-based liquidity to meet its obligations under a stressed scenario.

The Corporation maintains diverse and readily available liquidity sources, including:


•	Investment securities are an important tool to the Corporation’s liquidity objective, and can be pledged or sold to enhance liquidity, if necessary. See also Note 6 Investment Securities of the notes to consolidated financial statements for additional information on the Corporation's investment securities portfolio, including investment securities pledged.

•

The Bank pledges eligible loans to both the Federal Reserve Bank and the FHLB as collateral to establish lines of credit and borrow from these entities. Based on the amount of collateral pledged, the FHLB established a collateral value from which the Bank may draw advances against the collateral. Also, the collateral is used to enable the FHLB to issue letters of credit in favor of public fund depositors of the Bank. As of September 30, 2017, the Bank had $2.6 billion available for future advances. The Federal Reserve Bank also establishes a collateral value of assets to support borrowings from the discount window. As of September 30, 2017, the Bank had $2.2 billion available for discount window borrowings.


•	The Parent Company has a $200 million commercial paper program, of which, $68 million was outstanding as of September 30, 2017.


•	Dividends and service fees from subsidiaries, as well as the proceeds from issuance of capital, are funding sources for the Parent Company.


•	The Parent Company has filed a shelf registration statement with the SEC under which the Parent Company may, from time to time, offer shares of the Corporation’s common stock in connection with acquisitions of businesses, assets or securities of other companies.


•	The Parent Company also has filed a universal shelf registration statement with the SEC, under which the Parent Company may offer the following securities, either separately or in units: debt securities, preferred stock, depositary shares, common stock, and warrants.


•	The Bank may also issue institutional certificates of deposit, network transaction deposits, and brokered certificates of deposit.

Credit ratings relate to the Corporation’s ability to issue debt securities and the cost to borrow money, and should not be viewed as an indication of future stock performance or a recommendation to buy, sell, or hold securities. Adverse changes in these factors could result in a negative change in credit ratings and impact not only the ability to raise funds in the capital markets but also the cost of these funds. The credit ratings of the Parent Company and the Bank at September 30, 2017 are displayed below.

Table 13 Credit Ratings



	Moody’s	S&P^(a)
Bank short-term deposits	P-1	-
Bank long-term	A1	BBB+
Corporation short-term	P-2	-
Corporation long-term	Baa1	BBB
Outlook	Negative	Stable

(a) Standard and Poor's.

For the nine months ended September 30, 2017, net cash provided by operating activities and financing activities was $316 million and $717 million, respectively, while investing activities used net cash of $1.2 billion, for a net decrease in cash and cash equivalents of $151 million since year-end 2016. At September 30, 2017, assets of $30.1 billion increased $925 million compared to year-end 2016. On the funding side, deposits of $22.3 billion increased by $445 million when compared to year-end 2016.

For the nine months ended September 30, 2016, net cash provided by operating and financing activities was $416 million and $1.2 billion, respectively, while investing activities used net cash of $1.5 billion, for a net increase in cash and cash equivalents of $137 million since year-end 2015. During the first nine months of 2016, assets increased to $29.2 billion (up $1.4 billion or 5%) compared to year-end 2015, primarily due to an increase in loans. On the funding side, deposits and short-term funding increased $740 million and $406 million, respectively.

Quantitative and Qualitative Disclosures about Market Risk

Market risk and interest rate risk are managed centrally. Market risk is the potential for loss arising from adverse changes in the fair value of fixed income securities, equity securities, other earning assets and derivative financial instruments as a result of changes in interest rates or other factors. Interest rate risk is the potential for reduced net interest income resulting from adverse changes in the level of interest rates. As a financial institution that engages in transactions involving an array of financial products, the Corporation is exposed to both market risk and interest rate risk. In addition to market risk, interest rate risk is measured and managed through a number of methods. The Corporation uses financial modeling simulation techniques that measure the sensitivity of future earnings due to changing rate environments to measure interest rate risk.

Policies established by the Corporation’s Asset / Liability Committee (“ALCO”) and approved by the Board of Directors are intended to limit these risks. The Board has delegated day-to-day responsibility for managing market and interest rate risk to ALCO. The primary objectives of market risk management is to minimize any adverse effect that changes in market risk factors may have on net interest income and to offset the risk of price changes for certain assets recorded at fair value.

Interest Rate Risk

The primary goal of interest rate risk management is to control exposure to interest rate risk within policy limits approved by the Board of Directors. These limits and guidelines reflect our risk appetite for interest rate risk over both short-term and long-term horizons. No limit breaches occurred during the first nine months of 2017.

The major sources of our non-trading interest rate risk are timing differences in the maturity and re-pricing characteristics of assets and liabilities, changes in the shape of the yield curve, and the potential exercise of explicit or embedded options. We measure these risks and their impact by identifying and quantifying exposures through the use of sophisticated simulation and valuation models which are employed by management to understand net interest income (NII) at risk, interest rate sensitive earnings at risk (EAR), and market value of equity (MVE) at risk. These measures show that our interest rate risk profile was slightly asset sensitive at September 30, 2017.

For further discussion of the Corporation's interest rate risk and corresponding key assumptions, see the Interest Rate Risk section of Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Corporation’s 2016 Annual Report on Form 10-K.

The sensitivity analysis included below is measured as a percentage change in NII and EAR due to instantaneous moves in benchmark interest rates from a baseline scenario. We evaluate the sensitivity using: 1) a dynamic forecast incorporating expected growth in the balance sheet, and 2) a static forecast where the current balance sheet is held constant.

Table 14 Estimated % Change in Net Interest Income Over 12 Months



	Estimated % Change in Rate Sensitive Earnings at Risk (EAR) Over 12 Months
	Dynamic Forecast September 30, 2017		Static Forecast September 30, 2017		Dynamic Forecast December 31, 2016		Static Forecast December 31, 2016
Instantaneous Rate Change
100 bp increase in interest rates	2.3	%	2.4	%	1.4	%	1.5	%
200 bp increase in interest rates	4.2	%	4.5	%	2.7	%	2.9	%

At September 30, 2017, the MVE profile indicates a decline in net balance sheet value due to instantaneous upward changes in rates.

Table 15 Market Value of Equity Sensitivity



	September 30, 2017		December 31, 2016
Instantaneous Rate Change
100 bp increase in interest rates	(2.9	)%	(2.9	)%
200 bp increase in interest rates	(6.3	)%	(6.0	)%

While an instantaneous and severe shift in interest rates was used in this analysis to provide an estimate of exposure under an extremely adverse scenario, the Corporation believes that a gradual shift in interest rates would have a much more modest impact. Since MVE measures the discounted present value of cash flows over the estimated lives of instruments, the change in MVE does

not directly correlate to the degree that earnings would be impacted over a shorter time horizon (i.e., the current year). Further, MVE does not take into account factors such as future balance sheet growth, changes in product mix, changes in yield curve relationships, and changing product spreads that could mitigate the adverse impact of changes in interest rates.

The above NII, EAR, and MVE measures do not include all actions that management may undertake to manage this risk in response to anticipated changes in interest rates.

Contractual Obligations, Commitments, Off-Balance Sheet Arrangements, and Contingent Liabilities

Table 16 Contractual Obligations and Other Commitments



September 30, 2017	One Year or Less		One to Three Years		Three to Five Years		Over Five Years		Total
	($ in Thousands)
Time deposits	$	1,629,556	$	539,910	$	147,989	$	3,822	$	2,321,277
Short-term funding	1,064,617		—		—		—		1,064,617
Long-term funding	250,000		1,999,377		150,000		747,908		3,147,285
Operating leases	9,711		18,780		15,469		20,940		64,900
Commitments to extend credit	4,089,838		2,753,203		1,344,723		169,077		8,356,841
Total	$	7,043,722	$	5,311,270	$	1,658,181	$	941,747	$	14,954,920

The Corporation utilizes a variety of financial instruments in the normal course of business to meet the financial needs of its customers and to manage its own exposure to fluctuations in interest rates. These financial instruments include lending-related commitments and derivative instruments. A discussion of the Corporation’s derivative instruments at September 30, 2017, is included in Note 10, Derivative and Hedging Activities, of the notes to consolidated financial statements. A discussion of the Corporation’s lending-related commitments is included in Note 12, Commitments, Off-Balance Sheet Arrangements, Legal Proceedings and Regulatory Matters, of the notes to consolidated financial statements. See also Note 9, Short and Long-Term Funding, of the notes to consolidated financial statements for additional information on the Corporation’s short-term and long-term funding.

Table 16 summarizes significant contractual obligations and other commitments at September 30, 2017, at those amounts contractually due to the recipient, including any premiums or discounts, hedge basis adjustments, or other similar carrying value adjustments.

Capital

Management actively reviews capital strategies for the Corporation and each of its subsidiaries in light of perceived business risks, future growth opportunities, industry standards, and compliance with regulatory requirements. The assessment of overall capital adequacy depends on a variety of factors, including asset quality, liquidity, stability of earnings, changing competitive forces, economic condition in markets served, and strength of management. At September 30, 2017, the capital ratios of the Corporation and its banking subsidiary were in excess of regulatory minimum requirements. The Corporation’s capital ratios are summarized in Table 17.

Table 17 Capital Ratios



	3Q17			2Q17			1Q17			4Q16			3Q16
	($ in Thousands)
Risk-based Capital^(a)
Common equity Tier 1	$	2,144,325		$	2,130,238		$	2,085,309		$	2,032,587		$	1,983,770
Tier 1 capital	2,304,037			2,289,831			2,244,863			2,191,798			2,142,779
Total capital	2,823,097			2,808,049			2,757,310			2,706,760			2,656,648
Total risk-weighted assets	21,657,286			21,590,134			21,128,672			21,340,951			21,264,972
Common equity Tier 1 capital ratio	9.90		%	9.87		%	9.87		%	9.52		%	9.33		%
Tier 1 capital ratio	10.64		%	10.61		%	10.62		%	10.27		%	10.08		%
Total capital ratio	13.04		%	13.01		%	13.05		%	12.68		%	12.49		%
Tier 1 leverage ratio	7.93		%	8.09		%	8.05		%	7.83		%	7.64		%
Selected Equity and Performance Ratios
Total stockholders’ equity / assets	10.66		%	10.72		%	10.80		%	10.61		%	10.62		%
Dividend payout ratio^(b)	29.27		%	33.33		%	33.33		%	34.29		%	32.35		%

(a)

The Federal Reserve establishes regulatory capital requirements, including well-capitalized standards for the Corporation. The Corporation follows Basel III, subject to certain transition provisions. These regulatory capital measurements are used by management, regulators, investors, and analysts to assess, monitor and compare the quality and composition of our capital with the capital of other financial services companies. See Table 18 for a reconciliation of common equity Tier 1 and average common equity Tier 1.


(b)	Ratio is based upon basic earnings per common share.

Non-GAAP Measures

Table 18 Non-GAAP Measures



	YTD						Quarter Ended
	Sep 2017			Sep 2016			September 30, 2017			June 30, 2017			March 31, 2017			December 31, 2016			September 30, 2016
	($ in Thousands)
Selected Equity and Performance Ratios^(a)(b)
Tangible common equity / tangible assets							7.08		%	7.11		%	7.10		%	6.91		%	6.92		%
Return on average equity	7.59		%	6.47		%	8.10		%	7.35		%	7.31		%	7.07		%	7.03		%
Return on average tangible common equity	11.45		%	9.83		%	12.20		%	11.06		%	11.07		%	10.78		%	10.68		%
Return on average Common equity Tier 1	11.00		%	9.66		%	11.73		%	10.63		%	10.61		%	10.45		%	10.52		%
Return on average assets	0.82		%	0.68		%	0.86		%	0.80		%	0.79		%	0.75		%	0.74		%
Average stockholders' equity / average assets	10.77		%	10.58		%	10.63		%	10.84		%	10.85		%	10.67		%	10.52		%
Tangible Common Equity and Common Equity Tier 1 Reconciliation^(a)(b)
Common equity							$	3,043,672		$	3,031,573		$	2,984,865		$	2,931,383		$	2,937,186
Goodwill and other intangible assets, net							(986,086		)	(986,536		)	(987,032		)	(987,328		)	(987,853		)
Tangible common equity							$	2,057,586		$	2,045,037		$	1,997,833		$	1,944,055		$	1,949,333
Less: Accumulated other comprehensive income / loss							54,288			53,470			56,344			54,679			1,254
Less: Deferred tax assets/deferred tax liabilities, net							32,451			31,731			31,132			33,853			33,183
Common equity Tier 1							$	2,144,325		$	2,130,238		$	2,085,309		$	2,032,587		$	1,983,770
Tangible Assets Reconciliation^(a)
Total assets							$	30,064,547		$	29,769,025		$	29,109,857		$	29,139,315		$	29,152,764
Goodwill and other intangible assets, net							(986,086		)	(986,536		)	(987,032		)	(987,328		)	(987,853		)
Tangible assets							$	29,078,461		$	28,782,489		$	28,122,825		$	28,151,987		$	28,164,911
Average Tangible Common Equity and Average Common Equity Tier 1 Reconciliation^(a)(b)
Common equity	$	2,998,088		$	2,876,407		$	3,024,918		$	3,005,209		$	2,963,462		$	2,924,831		$	2,910,691
Goodwill and other intangible assets, net	(986,765		)	(988,664		)	(986,342		)	(986,826		)	(987,135		)	(987,640		)	(988,171		)
Tangible common equity	2,011,323			1,887,743			2,038,576			2,018,383			1,976,327			1,937,191			1,922,520
Less: Accumulated other comprehensive income / loss	51,163			678			49,164			50,148			54,234			27,922			(2,616		)
Less: Deferred tax assets/deferred tax liabilities, net	31,476			32,474			31,935			31,294			31,188			33,340			32,712
Average common equity Tier 1	$	2,093,962		$	1,920,895		$	2,119,675		$	2,099,825		$	2,061,749		$	1,998,453		$	1,952,616
Efficiency Ratio Reconciliation^(c)
Federal Reserve efficiency ratio	65.64		%	67.51		%	63.92		%	66.69		%	66.39		%	65.35		%	64.40		%
Fully tax-equivalent adjustment	(1.27		)%	(1.32		)%	(1.21		)%	(1.30		)%	(1.30		)%	(1.25		)%	(1.21		)%
Other intangible amortization	(0.18		)%	(0.20		)%	(0.16		)%	(0.18		)%	(0.20		)%	(0.20		)%	(0.19		)%
Fully tax-equivalent efficiency ratio	64.19		%	65.99		%	62.55		%	65.21		%	64.89		%	63.90		%	63.00		%


(a)	The ratio tangible common equity to tangible assets excludes goodwill and other intangible assets, net, which is a non-GAAP financial measure. This financial measure has been included as it is considered to be a critical metric with which to analyze and evaluate financial condition and capital strength.

(b)

(c)

The efficiency ratio as defined by the Federal Reserve guidance is noninterest expense (which includes the provision for unfunded commitments) divided by the sum of net interest income plus noninterest income, excluding investment securities gains / losses, net. The fully tax-equivalent efficiency ratio is noninterest expense (which includes the provision for unfunded commitments), excluding other intangible amortization, divided by the sum of fully tax-equivalent net interest income plus noninterest income, excluding investment securities gains / losses, net. Management believes the fully tax-equivalent efficiency ratio, which adjusts net interest income for the tax-favored status of certain loans and investment securities, to be the preferred industry measurement as it enhances the comparability of net interest income arising from taxable and tax-exempt sources.

See Part II, Item 2, Unregistered Sales of Equity Securities and Use of Proceeds, for additional information on the shares repurchased during the third quarter of 2017.

Sequential Quarter Results

The Corporation reported net income of $65 million for the third quarter of 2017, compared to net income of $58 million for the second quarter of 2017. Net income available to common equity was $63 million for the third quarter of 2017 or net income of $0.41 for both basic and diluted earnings per common share. Comparatively, net income available to common equity for the second quarter of 2017, was $56 million, or net income of $0.36 for both basic and diluted earnings per common share, respectively (see Table 1).

Fully tax-equivalent net interest income for the third quarter of 2017 was $195 million, $6 million higher from the second quarter of 2017. The net interest margin in the third quarter of 2017 was up 1 bp, to 2.84%. Average earning assets increased $715 million to $27.5 billion in the third quarter of 2017, with average loans up $377 million, while average investments and other short-term investments were up $338 million. On the funding side, average interest-bearing deposits were up $818 million, while noninterest-bearing demand deposits were up $100 million. Average short and long-term funding decreased $210 million (see Table 2).

The provision for credit losses was $5 million for the third quarter of 2017, down $7 million from the second quarter of 2017 (see Table 10). See discussion under sections: Provision for Credit Losses, Nonperforming Assets, and Allowance for Credit Losses.

Noninterest income for the third quarter of 2017 increased $3 million (4%) to $86 million versus the second quarter of 2017. Fee-based revenue decreased $1 million (2%) from the second quarter of 2017, primarily due to card-based and other nondeposit fees. Mortgage banking, net, was up $2 million (31%) from the second quarter of 2017 as the Corporation resumed its historical practice of originating loans for sale in the secondary market. BOLI income was $7 million, an increase of $3 million (69%) from the second quarter of 2017, primarily due to increased policy payouts during the third quarter of 2017. (see Table 3).

Noninterest expense increased $1 million (1%) to $177 million. Personnel expense was $106 million for the third quarter of 2017, up $1 million (1%) from the second quarter of 2017. Occupancy expense decreased $1 million (4%) from the second quarter of 2017, primarily driven by the benefits from ongoing internal consolidation efforts. Legal and professional fees were $6 million, up $1 million (9%) from the second quarter of 2017, primarily driven by higher consulting fees related to the pending acquisition of Bank Mutual. All remaining noninterest expense categories on a combined basis were virtually flat compared to the second quarter of 2017 (see Table 4).

For the third quarter of 2017, the Corporation recognized income tax expense of $29 million, compared to income tax expense of $20 million for the second quarter of 2017. The effective tax rate was 30.55% and 25.58% for the third quarter of 2017 and the second quarter of 2017, respectively. See Income Taxes section for a detailed discussion on income taxes.

Comparable Quarter Results

The Corporation reported net income of $65 million for the third quarter of 2017, compared to $54 million for the third quarter of 2016. Net income available to common equity was $63 million for the third quarter of 2017, or net income of $0.41 for both basic and diluted earnings per common share. Comparatively, net income available to common equity for the third quarter of 2016, was $52 million, or net income of $0.34 for both basic and diluted earnings per common share (see Table 1).

Fully tax-equivalent net interest income for the third quarter of 2017 was $195 million, $12 million higher than the third quarter of 2016. The net interest margin between the comparable quarters was up 7 bp, to 2.84%, in the third quarter of 2017. Average earning assets increased $1.0 billion to $27.5 billion in the third quarter of 2017, with average loans up $846 million (predominantly due to increases in residential mortgage loans). On the funding side, average interest-bearing deposits increased $1.2 billion, while noninterest-bearing demand deposits decreased $170 million from the third quarter of 2016. Average short and long-term funding decreased $183 million (see Table 2).

The provision for credit losses was $5 million for the third quarter of 2017, down $16 million from the third quarter of 2016 (see Table 10). See discussion under sections: Provision for Credit Losses, Nonperforming Assets, and Allowance for Credit Losses.

Noninterest income for the third quarter of 2017 of $86 million was down $9 million (10%) compared to third quarter of 2016. Net mortgage banking income for the third quarter of 2017 was down $12 million (64%) compared to the third quarter of 2016, primarily driven by portfolio loan sales in the third quarter of 2016. Capital market fees, net, was down $2 million (34%), primarily driven by decreased syndication fees compared to the third quarter of 2016. BOLI income increased $3 million (100%) from the third quarter of 2016, primarily due to increased policy payouts during the third quarter of 2017 (see Table 3).

On a comparable quarter basis, noninterest expense increased $2 million (1%) to $177 million for the third quarter of 2017. Personnel expense was $106 million for the third quarter of 2017, up $2 million (2%) from the third quarter of 2016, primarily driven by an increase in health insurance costs and incentive plan estimates. Occupancy expense decreased $3 million (20%) compared to the third quarter of 2016, primarily driven by the benefits from ongoing internal consolidation efforts. Technology

expense increased $1 million (7%) to $15 million in the third quarter of 2017, driven by investments in technology solutions that meet evolving customer needs and improve operational efficiency. Business development and advertising expense was $8 million, an increase of $3 million (48%) from the third quarter of 2016, primarily driven by the Corporation's expanded fall advertising campaigns. Legal and professional fees increased $1 million (30%) from the third quarter of 2016, primarily due to the pending acquisition of Bank Mutual. All remaining noninterest expense categories on a combined were down $2 million (6%) compared to third quarter of 2016 (see Table 4).

The Corporation recognized income tax expense of $29 million for the third quarter of 2017, compared to income tax expense of $24 million for third quarter of 2016. The effective tax rate was 30.55% and 30.52% for the third quarter of 2017 and 2016, respectively. See Income Taxes section for a detailed discussion on income taxes.

Segment Review

As discussed in Note 15 Segment Reporting of the notes to consolidated financial statements, the Corporation’s reportable segments have been determined based upon its internal profitability reporting system, which is organized by strategic business unit. Certain strategic business units have been combined for segment information reporting purposes where the nature of the products and services, the type of customer, and the distribution of those products and services are similar. The reportable segments are Corporate and Commercial Specialty; Community, Consumer and Business; and Risk Management and Shared Services.

FTP is an important tool for managing the Corporation’s balance sheet structure and measuring risk-adjusted profitability. By appropriately allocating the cost of funding and contingent liquidity to business units, the FTP process improves product pricing, which influences the volume and terms of new business and helps to optimize the risk / reward profile of the balance sheet. This process helps align the Corporation’s funding and contingent liquidity risk with its risk appetite and complements broader liquidity and interest rate risk management programs. FTP methodologies are designed to promote more resilient, sustainable business models and centralize the management of funding and contingent liquidity risks. Through FTP, the Corporation transfers these risks to a central management function that can take advantage of natural off-sets, centralized hedging activities, and a broader view of these risks across business units.

Year to Date Segment Review

The Corporate and Commercial Specialty segment consists of lending and deposit solutions to larger businesses, developers, not-for-profits, municipalities, and financial institutions, and the support to deliver, fund, and manage such banking solutions. The Corporate and Commercial Specialty segment had net income of $106 million for the first nine months of 2017, up $19 million, compared to $87 million for the first nine months of 2016. Segment revenue increased $30 million to $308 million for the first nine months of 2017, compared to $278 million for the first nine months of 2016, primarily due to growth in average loan balances and interest rate increases at the end of 2016 and in 2017. The credit provision decreased $6 million to $33 million during the first nine months of 2017 due to the migration of general commercial related credits and oil and gas related credits. Average loan balances were $10.8 billion for the first nine months of 2017, up $749 million from the first nine months of 2016. Average deposit balances were $6.8 billion for the first nine months of 2017, up $852 million from the first nine months of 2016. Average allocated capital increased $58 million to $1.1 billion for the first nine months of 2017, reflecting the increase in the segment’s loan balances.

The Community, Consumer, and Business segment consists of lending and deposit solutions to individuals and small to mid-sized businesses and also provides a variety of investment and fiduciary products and services. The Community, Consumer, and Business segment had net income of $60 million for the first nine months of 2017, up $10 million from the first nine months of 2016. Segment revenue increased $3 million to $469 million for the first nine months of 2017, primarily due to growth in average loan balances and interest rate increases. Noninterest expense decreased $9 million to $362 million for the first nine months of 2017, primarily due to decreases in personnel related expenses. Average loan balances were $9.4 billion for the first nine months of 2017, up $129 million from the first nine months of 2016. Average deposits were $11.6 billion for the first nine months of 2017, up $248 million from the first nine months of 2016. Average allocated capital decreased $47 million to $585 million for the first nine months of 2017.

The Risk Management and Shared Services segment had net income of $14 million for the first nine months of 2017, up $5 million compared to the first nine months of 2016. Net interest income decreased $14 million, primarily due to recent changes in the rate environment, as well as an adjustment of FTP rate assumptions that increased the interest income allocated to the lines of business with an offsetting decrease in the interest income allocated to the Risk Management and Shared Services segment. Noninterest income decreased $5 million, primarily due to $6 million gain on the sales of FNMA and FHLMC securities in the nine months ended September 30, 2016. The credit provision improved $20 million. Average earning asset balances were $6.6 billion for the first nine months of 2017, up $79 million from the first nine months of 2016. Average deposits were $3.5 billion for the first nine months of 2017, down $45 million from the first nine months of 2016. Average allocated capital increased to $387 million for the first nine months of 2017.

Comparable Quarter Segment Review

The Corporate and Commercial Specialty segment had net income of $36 million for the third quarter of 2017, up $4 million from the comparable quarter in 2016. Segment revenue increased $8 million compared to third quarter of 2016, primarily due to growth in average loan balances and interest rate increases at the end of 2016 and in 2017. The credit provision decreased $2 million to $9 million for the third quarter of 2017, due to the migration of general commercial related credits and oil and gas related credits. Average loan balances were $10.9 billion for the third quarter of 2017, up $481 million from an average balance of $10.4 billion for third quarter of 2016. Average deposit balances were $7.4 billion for the third quarter of 2017, up $1.2 billion from the comparable quarter of 2016. Average allocated capital increased $34 million to $1.1 billion for third quarter of 2017.

The Community, Consumer, and Business Banking segment had net income of $22 million for the third quarter of 2017, up $1 million compared to third quarter of 2016. Segment revenue decreased $7 million to $159 million for the third quarter of 2017, primarily due to a decrease in net mortgage banking. Total noninterest expense for third quarter of 2017 was $120 million, down $7 million from the comparable quarter of 2016, primarily due to a decrease in personnel expense. Average loan balances were $9.6 billion for the third quarter of 2017, up $189 million from the comparable quarter of 2016. Average deposits were $11.8 billion for the third quarter of 2017, up $262 million from average deposits of $11.5 billion for the comparable quarter of 2016. Average allocated capital decreased $45 million compared to the third quarter of 2016.

The Risk Management and Shared Services segment had revenue of $13 million in the third quarter of 2017, an increase of $1 million from the comparable quarter of 2016. The increase in noninterest income was primarily due to $3 million increased proceeds from bank owned life insurance policy payouts, which was partially offset by decreased capital market fees of $1 million and the loss on sale of assets of $1 million from the comparable quarter of 2016. The credit provision decreased $13 million. Average deposits were $3.3 billion for third quarter of 2017, down $396 million versus the comparable quarter of 2016. Average allocated capital increased $178 million to $406 million for third quarter of 2017.

Critical Accounting Policies

In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ significantly from those estimates. Estimates that are particularly susceptible to significant change include the determination of the allowance for loan losses, goodwill impairment assessment, mortgage servicing rights valuation, and income taxes. A discussion of these policies can be found in the "Critical Accounting Policies" section in Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Corporation’s 2016 Annual Report on Form 10-K. There have been no changes in the Corporation's application of critical accounting policies since December 31, 2016.

Future Accounting Pronouncements

New accounting policies adopted by the Corporation are discussed in Note 3 Summary of Significant Accounting Policies, of the notes to consolidated financial statements. The expected impact of accounting pronouncements recently issued or proposed but not yet required to be adopted are displayed in the table below.



Standard	Description	Date of adoption	Effect on financial statements
ASU 2017-07 Compensation — Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost	The FASB issued the update to improve the presentation of net periodic pension cost and net periodic postretirement benefit cost, including a requirement that employers disaggregate the service cost component from the other components of net benefit cost. In addition, the amendments provide explicit guidance on how to present the service cost component and the other components of net benefit cost in the income statement and allow only the service cost component of net benefit cost to be eligible for capitalization. This amendment is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Entities should apply the amendment retrospectively to each period presented and prospectively only for the capitalization component. Early adoption is permitted, but should be within the first interim period if interim financial statements are issued.	1st Quarter 2018	Upon adoption, the Corporation will have a slight change in presentation, and an immaterial impact to its results of operations, financial position, and liquidity.
ASU 2017-04 Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment	The FASB issued an amendment to simplify the subsequent quantitative measurement of goodwill by eliminating step two from the goodwill impairment test. Instead, an entity will perform only step one of its quantitative goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, and then recognizing an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. An entity will still have the option to perform a qualitative assessment for a reporting unit to determine if the quantitative step one impairment test is necessary. This amendment is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Entities should apply the amendment prospectively. Early adoption is permitted, including in an interim period, for impairment tests performed after January 1, 2017. The Corporation has not had to perform a step one quantitative analysis since 2012, which concluded no impairment was necessary.	2nd Quarter 2020, consistent with the Corporation's annual impairment test in May of each year.	The Corporation is currently evaluating the impact on its results of operations, financial position, and liquidity.
ASU 2017-01 Business Combinations (Topic 805): Clarifying the Definition of a Business	The FASB issued amendments to clarify the definition of a business in order to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets versus businesses. The new standard narrows the definition of a business by adding three principal clarifications if: (1) substantially all the fair value of the gross assets in the asset group is concentrated in either a single identifiable asset or group of similar identifiable assets the transaction does not involve a business (2) the asset group does not include a minimum of an input and a substantive process, it does not represent a business, and (3) the integrated set of activities (including its inputs and processes) does not create, or have the ability to create, goods or services to customers, investment income (e,g. dividends or interest) or other revenues, it is not a business. The overall intention is to provide consistency in applying the guidance, reduce the costs of application, and make the definition of a business more operable.	1st Quarter 2018	The Corporation has evaluated adoption of the new guidance and determined it will not have a material impact on its results of operations, financial position, or liquidity.
ASU 2016-18 Statement of Cash Flows (Topic 230): Restricted Cash	The FASB issued an amendment to improve GAAP by providing guidance on the presentation of restricted cash or restricted cash equivalents in the statement of cash flows, in order to reduce diversity in practice. The amendment requires that a statement of cash flow explain the change during the period in the total cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included in cash and cash equivalents when reconciling the beginning and end of period total amounts shown on the statement of cash flow. This amendment is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Entities should apply the amendment retrospectively to each period presented. Early adoption is permitted, including in an interim period.	1st Quarter 2018	Upon adoption, the Corporation will have a slight change in presentation, and an immaterial impact to its results of operations, financial position, and liquidity.
ASU 2016-16 Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory	The FASB issued an amendment requiring an entity to recognize income tax consequences on an intra-entity transfer of an asset other than inventory at the time the transaction occurs. This amendment is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Entities should apply the amendment by means of a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. Early adoption is permitted for all entities in the first interim period if an entity issues interim financial statements.	1st Quarter 2018	The Corporation has evaluated adoption of the new guidance and determined it will not have a material impact on its results of operations, financial position, or liquidity.
ASU 2016-15 Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments	The FASB issued an amendment to provide clarification on where to classify cash flows involving certain cash receipts and cash payments. Under the new guidance, cash payments for debt prepayment or debt extinguishment costs should be classified as cash outflows for financing activities. The new guidance also details the specific classification of contingent consideration cash payments made after a business combination depending on the timing of payments. Lastly, cash proceeds received from corporate owned life insurance policies (including BOLI) should be classified as cash inflows from investing, while the cash payments for the premiums may be classified as cash outflows for investing, operating, or a combination of both. This amendment is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Entities should apply the amendment retrospectively to each period presented. Early adoption is permitted, including in an interim period; however, all of the amendments must be adopted in the same period.	1st Quarter 2018	The Corporation is currently evaluating the impact on its results of operations, financial position, and liquidity.



Standard	Description	Date of adoption	Effect on financial statements
ASU 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments	The FASB issued an amendment to replace the current incurred loss impairment methodology. Under the new guidance, entities will be required to measure expected credit losses by utilizing forward-looking information to assess an entity's allowance for credit losses. The guidance also requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. An entity must use judgment in determining the relevant information and estimation methods that are appropriate in its circumstances. This amendment is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Entities should apply the amendment by means of a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. Early adoption is permitted.	1st Quarter 2020	The Corporation is currently evaluating the impact on its results of operations, financial position, and liquidity.
ASU 2016-02 Leases (Topic 842)	The FASB issued an amendment to provide transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This amendment will require lessees to recognize the following for all leases (with the exception of short-term leases) at the commencement date: 1) a lease liability, which is a lessee's obligation to make lease payments arising from a lease, measured on a discounted basis; and 2) a right-of-use asset, which is an asset that represents the lessee's right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. This amendment is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018. Entities are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The modified retrospective approach includes a number of optional practical expedients that entities may elect to apply. These practical expedients relate to the identification and classification of leases that commenced before the effective date, initial direct costs for leases that commenced before the effective date, and the ability to use hindsight in evaluating lessee options to extend or terminate a lease or to purchase the underlying asset. Early adoption is permitted.	1st Quarter 2019	The Corporation is currently evaluating the impact on its results of operations, financial position, and liquidity.
ASU 2016-01 Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities	The FASB issued an amendment to address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. This amendment supersedes the guidance to classify equity securities with readily determinable fair values into different categories, requires equity securities to be measured at fair value with changes in the fair value recognized through net income, and simplifies the impairment assessment of equity investments without readily determinable fair values. The amendment requires public business entities that are required to disclose the fair value of financial instruments measured at amortized cost on the balance sheet to measure that fair value using the exit price notion. The amendment requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option. The amendment requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or in the accompanying notes to the financial statements. The amendment reduces diversity in current practice by clarifying that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available for sale securities in combination with the entity’s other deferred tax assets. This amendment is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Entities are required to apply the amendment by means of a cumulative-effect adjustment as of the beginning of the fiscal year of adoption, with the exception of the amendment related to equity securities without readily determinable fair values, which should be applied prospectively to equity investments that exist as of the date of adoption.	1st Quarter 2018	The Corporation has evaluated adoption of the new guidance and determined it will not have a material impact on its results of operations, financial position, or liquidity.

Recent Developments

The Corporation completed its previously announced acquisition of Whitnell & Co., a wealth management family services firm based in Oak Brook, IL, on October 2, 2017. Whitnell has approximately $1.0 billion in assets under management. The acquisition is expected to increase both the Corporation’s assets under management and related run-rate revenue by more than 10%. The transaction is not expected to have a material impact on the Corporation’s 2017 earnings, but is expected to be accretive to 2018 earnings.

For recent developments on litigation related to the acquisition of Bank Mutual, see Note 12 Commitments, Off-Balance Sheet Arrangements, Legal Proceedings and Regulatory Matters.

On October 24, 2017, the Corporation’s Board of Directors declared a regular quarterly cash dividend of $0.14 per common share, payable on December 15, 2017 to shareholders of record at the close of business on December 1, 2017. This is an increase of $0.02 from the previous quarterly dividend of $0.12 per common share. The Board of Directors also declared a regular quarterly cash dividend of $0.3828125 per depositary share on the Corporation’s 6.125% Series C Perpetual Preferred Stock, payable on December 15, 2017 to shareholders of record at the close of business on December 1, 2017. The Board of Directors also declared a regular quarterly cash dividend of $0.3359375 per depositary share on the Corporation’s 5.375% Series D Perpetual Preferred Stock, payable on December 15, 2017 to shareholders of record at the close of business on December 1, 2017.



ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk

Information required by this item is set forth in Item 2 under the captions Quantitative and Qualitative Disclosures about Market Risk and Interest Rate Risk.



ITEM 4.	Controls and Procedures

The Corporation maintains disclosure controls and procedures as required under Rule 13a-15 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Corporation’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As of September 30, 2017 the Corporation’s management carried out an evaluation, under the supervision and with the participation of the Corporation’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of its disclosure controls and procedures. Based on the foregoing, its Chief Executive Officer and Chief Financial Officer concluded that the Corporation’s disclosure controls and procedures were effective as of September 30, 2017.

No changes were made to the Corporation’s internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act of 1934) during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

PART II - OTHER INFORMATION



ITEM 1.	Legal Proceedings

The information required by this item is set forth in Part I, Item 1 under Note 12 Commitments, Off-Balance Sheet Arrangements, Legal Proceedings and Regulatory Matters.



ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds

During the third quarter of 2017, the Corporation repurchased $37 million, or approximately 1.6 million shares, of common stock. The repurchase details are presented in the table below.



	Total Number of Shares Purchased^(a)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs^(b)
Period
July 1, 2017 - July 31, 2017	1,556,473	$	23.59	1,556,473	—
August 1, 2017 - August 31, 2017	13,028	23.99		13,028	—
September 1, 2017 - September 30, 2017	—	—		—	—
Total	1,569,501	$	23.59	1,569,501	2,103,093


(a)	During the third quarter of 2017, the Corporation repurchased approximately 7,200 common shares for minimum tax withholding settlements on equity compensation. These purchases do not count against the maximum number of shares that may yet be purchased under the Board of Directors’ authorization.

(b)

On April 21, 2015, the Board of Directors authorized the repurchase of up to $125 million of the Corporation's common stock, of which approximately $51 million remained available to repurchase as of September 30, 2017. Using the closing stock price on September 30, 2017 of $24.25, a total of approximately 2.1 million shares of common stock remained available to be repurchased under the previously approved Board authorizations as of September 30, 2017.

On August 28, 2015, the Board of Directors authorized the repurchase of up to $10 million of depositary shares of the Series C Preferred Stock, of which all remained available to repurchase as of September 30, 2017. Additionally, on July 25, 2017, the Board of Directors authorized the repurchase of up to $15 million of depositary shares of the Series D Preferred Stock, of which all remained available to repurchase as of September 30, 2017. The repurchase of shares is based on market and investment opportunities, capital levels, growth prospects, and regulatory constraints. Such repurchases may occur from time to time in open market purchases, block transactions, private transactions, accelerated share repurchase programs, or similar facilities.



ITEM 6.	Exhibits

(a) Exhibits:

Exhibit (10), James K. Simons Separation Agreement and General Release dated August 4, 2017.^(a)

Exhibit (11), Statement regarding computation of per share earnings. The information required by this item is set forth in Part I, Item 1 under Note 4 Earnings Per Common Share.

Exhibit (31.1), Certification Under Section 302 of Sarbanes-Oxley by Philip B. Flynn, Chief Executive Officer.

Exhibit (31.2), Certification Under Section 302 of Sarbanes-Oxley by Christopher J. Del Moral-Niles, Chief Financial Officer.

Exhibit (32), Certification by the Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of Sarbanes-Oxley.

Exhibit (101), Interactive data files pursuant to Rule 405 of Regulation S-T: (i) Unaudited Consolidated Balance Sheets, (ii) Unaudited Consolidated Statements of Income, (iii) Unaudited Consolidated Statements of Comprehensive Income, (iv) Unaudited Consolidated Statements of Changes in Stockholders’ Equity, (v) Unaudited Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements.

(a) Management contracts and arrangements.

SIGNATURES

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




		ASSOCIATED BANC-CORP
		(Registrant)

Date: October 26, 2017		/s/ Philip B. Flynn
		Philip B. Flynn
		President and Chief Executive Officer

Date: October 26, 2017		/s/ Christopher J. Del Moral-Niles
		Christopher J. Del Moral-Niles
		Chief Financial Officer

Date: October 26, 2017		/s/ Tammy C. Stadler
		Tammy C. Stadler
		Principal Accounting Officer

Description

Date of adoption

Effect on financial statements

ASU 2017-12 Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities

The FASB issued the amendment to better align a company’s financial reporting for hedging activities with the economic objectives of those activities for both financial (e.g., interest rate) and commodity risks. The provisions create more transparency around how economic results are presented, both on the face of the financial statements and in the footnotes. It also contains targeted improvements to simplify the application of hedge accounting guidance. This amendment is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Entities should apply the amendment on a modified retrospective transition method in which the cumulative effect of the change will be recognized within equity in the consolidated balance sheet as of the date of adoption. Early adoption is permitted, including in an interim period. If an entity early adopts in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes the interim period.

1st Quarter 2019

For the Corporation to date, all notional amounts of customer derivative transactions have been matched with a mirror derivative transaction with another counterparty. The Corporation has used, and may use again in the future, derivative instruments to hedge the variability in interest payments or protect the value of certain assets and liabilities recorded on its consolidated balance sheets from changes in interest rates. Therefore, the new ASU is not currently applicable; however, there is the potential the standard could apply in the future if such arrangements begin to occur.



		Page
PART I. Financial Information

	Item 1. Financial Statements (Unaudited):	3

	Consolidated Balance Sheets	3

	Consolidated Statements of Income	4

	Consolidated Statements of Comprehensive Income	5

	Consolidated Statements of Changes in Stockholders’ Equity	6

	Consolidated Statements of Cash Flows	7

	Notes to Consolidated Financial Statements	8

	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	44

	Item 3. Quantitative and Qualitative Disclosures About Market Risk	72

	Item 4. Controls and Procedures	73

PART II. Other Information

	Item 1. Legal Proceedings	74

	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	74

	Item 6. Exhibits	74

	Signatures	75