Associated Banc-Corp - 10-Q quarterly report FY2011 Q2

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 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 June 30, 2011

OR


o		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.)


1200 Hansen Road, Green Bay, Wisconsin		54304

(Address of principal executive offices)		(Zip code)

(920) 491-7000

(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 o

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 o

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


Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o(Do not check if smaller reporting company)		Smaller reporting company o

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

APPLICABLE ONLY TO CORPORATE ISSUERS:

The number of shares outstanding of registrant’s common stock, par value $0.01 per share, at July 31, 2011, was 173,399,852.

ASSOCIATED BANC-CORP
TABLE OF CONTENTS


	Page No.
PART I. Financial Information

Item 1. Financial Statements (Unaudited):		3

Consolidated Balance Sheets — June 30, 2011 and December 31, 2010		3

Consolidated Statements of Income (Loss) — Three and Six Months Ended June 30, 2011 and 2010		4

Consolidated Statements of Changes in Stockholders’ Equity — Six Months Ended June 30, 2011 and 2010		5

Consolidated Statements of Cash Flows — Six Months Ended June 30, 2011 and 2010		6

Notes to Consolidated Financial Statements		7

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk		77

Item 4. Controls and Procedures		77

PART II. Other Information

Item 1. Legal Proceedings		77

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		78

Item 6. Exhibits		78

Signatures		79
EX-31.1
EX-31.2
EX-32
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

2

PART I — FINANCIAL INFORMATION


ITEM 1.		Financial Statements:

ASSOCIATED BANC-CORP

Consolidated Balance Sheets


	June 30,			December 31,
	2011			2010
	(Unaudited)			(Audited)
	(In Thousands, except share data)
ASSETS
Cash and due from banks	$	314,682		$	319,487
Interest-bearing deposits in other financial institutions		777,675			546,125
Federal funds sold and securities purchased under agreements to resell		2,400			2,550
Investment securities available for sale, at fair value		5,742,034			6,101,341
Federal Home Loan Bank and Federal Reserve Bank stocks, at cost		191,075			190,968
Loans held for sale		84,323			144,808
Loans		13,089,589			12,616,735
Allowance for loan losses		(425,961	)		(476,813	)

Loans, net		12,663,628			12,139,922
Premises and equipment, net		192,506			190,533
Goodwill		929,168			929,168
Other intangible assets, net		74,872			88,044
Other assets		1,076,112			1,132,650

Total assets	$	22,048,475		$	21,785,596


LIABILITIES AND STOCKHOLDERS’ EQUITY
Noninterest-bearing demand deposits	$	3,218,722		$	3,684,965
Interest-bearing deposits, excluding brokered certificates of deposit		10,530,658			11,097,788
Brokered certificates of deposit		316,670			442,640

Total deposits		14,066,050			15,225,393
Short-term funding		3,255,670			1,747,382
Long-term funding		1,484,174			1,413,605
Accrued expenses and other liabilities		243,433			240,425

Total liabilities		19,049,327			18,626,805

Stockholders’ equity
Preferred equity		258,051			514,388
Common stock		1,745			1,739
Surplus		1,581,594			1,573,372
Retained earnings		1,079,076			1,041,666
Accumulated other comprehensive income		79,345			27,626
Treasury stock, at cost		(663	)		—

Total stockholders’ equity		2,999,148			3,158,791

Total liabilities and stockholders’ equity	$	22,048,475		$	21,785,596

Preferred shares issued		262,500			525,000
Preferred shares authorized (par value $1.00 per share)		750,000			750,000
Common shares issued		174,522,655			173,887,504
Common shares authorized (par value $0.01 per share)		250,000,000			250,000,000
Treasury shares of common stock		48,724			—

See accompanying notes to consolidated financial statements.

3


ITEM 1.		Financial Statements Continued:

ASSOCIATED BANC-CORP

Consolidated Statements of Income (Loss)
(Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
				(In Thousands, except per share data)
INTEREST INCOME
Interest and fees on loans	$	144,358		$	153,815		$	287,129		$	313,106
Interest and dividends on investment securities:
Taxable		35,351			40,292			70,003			86,460
Tax exempt		7,504			8,558			15,217			17,266
Other interest and dividends		1,438			2,213			2,896			3,986

Total interest income		188,651			204,878			375,245			420,818
INTEREST EXPENSE
Interest on deposits		16,901			28,360			35,150			57,105
Interest on short-term funding		3,637			1,820			7,216			3,846
Interest on long-term funding		13,990			14,905			25,033			30,852

Total interest expense		34,528			45,085			67,399			91,803

NET INTEREST INCOME		154,123			159,793			307,846			329,015
Provision for loan losses		16,000			97,665			47,000			263,010

Net interest income after provision for loan losses		138,123			62,128			260,846			66,005
NONINTEREST INCOME
Trust service fees		10,012			9,517			19,843			18,873
Service charges on deposit accounts		19,112			26,446			38,176			52,505
Card-based and other nondeposit fees		15,747			14,739			31,345			28,551
Retail commission income		16,475			15,722			32,856			31,539
Mortgage banking, net		(3,320	)		5,493			(1,475	)		10,900
Capital market fees, net		(890	)		(136	)		1,488			(6	)
Bank owned life insurance income		3,500			4,240			7,086			7,496
Asset sale gains (losses), net		(209	)		1,477			(2,195	)		(164	)
Investment securities gains (losses), net:
Realized gains (losses), net		(14	)		—			(13	)		23,581
Other-than-temporary impairments		(22	)		(146	)		(45	)		(146	)
Less: Non-credit portion recognized in other comprehensive income (before taxes)		—			—			—			—

Total investment securities gains (losses), net		(36	)		(146	)		(58	)		23,435
Other		4,364			3,539			9,871			5,800

Total noninterest income		64,755			80,891			136,937			178,929
NONINTEREST EXPENSE
Personnel expense		89,203			79,342			178,133			158,697
Occupancy		12,663			11,706			27,938			24,881
Equipment		4,969			4,450			9,736			8,835
Data processing		7,974			7,866			15,508			15,165
Business development and advertising		5,652			4,773			10,595			9,218
Other intangible asset amortization expense		1,178			1,254			2,356			2,507
Legal and professional fees		4,783			5,517			9,265			8,312
Losses other than loans		(1,925	)		2,840			4,372			4,819
Foreclosure/OREO expense		9,527			8,906			15,588			16,635
FDIC expense		7,198			12,027			15,442			23,856
Other		17,664			16,357			34,129			33,972

Total noninterest expense		158,886			155,038			323,062			306,897

Income (loss) before income taxes		43,992			(12,019	)		74,721			(61,963	)
Income tax expense (benefit)		9,610			(9,240	)		17,486			(32,795	)

Net income (loss)	$	34,382		$	(2,779	)	$	57,235		$	(29,168	)
Preferred stock dividends and discount accretion		8,812			7,377			16,225			14,742

Net income (loss) available to common equity	$	25,570		$	(10,156	)	$	41,010		$	(43,910	)

Earnings (loss) per common share:
Basic	$	0.15		$	(0.06	)	$	0.24		$	(0.26	)
Diluted	$	0.15		$	(0.06	)	$	0.24		$	(0.26	)
Average common shares outstanding:
Basic		173,323			172,921			173,268			169,401
Diluted		173,327			172,921			173,272			169,401

See accompanying notes to consolidated financial statements.

4


ITEM 1.		Financial Statements Continued:

ASSOCIATED BANC-CORP

Consolidated Statements of Changes in Stockholders’ Equity
(Unaudited)


											Accumulated
											Other
	Preferred			Common				Retained			Comprehensive		Treasury
	Equity			Stock		Surplus		Earnings			Income		Stock			Total
								($ in Thousands, except per share data)
Balance, December 31, 2009	$	511,107		$	1,284	$	1,082,335	$	1,081,156		$	63,432	$	(706	)	$	2,738,608
Comprehensive loss:
Net loss		—			—		—		(29,168	)		—		—			(29,168	)
Other comprehensive income		—			—		—		—			9,741		—			9,741

Comprehensive loss																	(19,427	)

Common stock issued:
Issuance of common stock		—			448		477,910		—			—		—			478,358
Stock-based compensation plans, net		—			5		2,566		(1,709	)		—		624			1,486
Purchase of treasury stock		—			—		—		—			—		(805	)		(805	)
Cash dividends:
Common stock, $0.02 per share		—			—		—		(3,472	)		—		—			(3,472	)
Preferred stock		—			—		—		(13,125	)		—		—			(13,125	)
Accretion of preferred stock discount		1,617			—		—		(1,617	)		—		—			—
Stock-based compensation expense, net		—			—		4,497		—			—		—			4,497
Tax benefit of stock options		—			—		7		—			—		—			7

Balance, June 30, 2010	$	512,724		$	1,737	$	1,567,315	$	1,032,065		$	73,173	$	(887	)	$	3,186,127


Balance, December 31, 2010	$	514,388		$	1,739	$	1,573,372	$	1,041,666		$	27,626	$	—		$	3,158,791
Comprehensive income:
Net income		—			—		—		57,235			—		—			57,235
Other comprehensive income		—			—		—		—			51,719		—			51,719

Comprehensive income																	108,954

Common stock issued:
Stock-based compensation plans, net		—			6		2,437		(113	)		—		(47	)		2,283
Purchase of treasury stock		—			—		—		—			—		(616	)		(616	)
Cash dividends:
Common stock, $0.02 per share		—			—		—		(3,487	)		—		—			(3,487	)
Preferred stock		—			—		—		(10,062	)		—		—			(10,062	)
Redemption of preferred stock		(262,500	)		—		—		—			—		—			(262,500	)
Accretion of preferred stock discount		6,163			—		—		(6,163	)		—		—			—
Stock-based compensation expense, net		—			—		5,774		—			—		—			5,774
Tax benefit of stock options		—			—		11		—			—		—			11

Balance, June 30, 2011	$	258,051		$	1,745	$	1,581,594	$	1,079,076		$	79,345	$	(663	)	$	2,999,148

See accompanying notes to consolidated financial statements.

5


ITEM 1.		Financial Statements Continued:

ASSOCIATED BANC-CORP

Consolidated Statements of Cash Flows
(Unaudited)


	For the Six Months Ended
	June 30,
	2011			2010
	($ in Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	57,235		$	(29,168	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Provision for loan losses		47,000			263,010
Depreciation and amortization		15,918			14,984
Addition to (recovery of) valuation allowance on mortgage servicing rights, net		5,763			(2,698	)
Amortization of mortgage servicing rights		11,637			11,105
Amortization of other intangible assets		2,356			2,507
Amortization and accretion on earning assets, funding, and other, net		30,421			29,452
Tax benefit from exercise of stock options		11			7
(Gain) loss on sales of investment securities, net and impairment write-downs		58			(23,435	)
Loss on sales of assets, net		2,195			164
Gain on mortgage banking activities, net		(10,581	)		(12,448	)
Mortgage loans originated and acquired for sale		(540,893	)		(956,711	)
Proceeds from sales of mortgage loans held for sale		605,375			893,763
Decrease in interest receivable		3,752			7,217
Increase (decrease) in interest payable		1,585			(1,040	)
Net change in other assets and other liabilities		41,184			51,795

Net cash provided by operating activities		273,016			248,504

CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in loans		(640,916	)		881,697
Purchases of:
Investment securities		(433,972	)		(1,034,757	)
Premises, equipment, and software, net of disposals		(23,023	)		(8,065	)
Other assets		(1,349	)		(2,137	)
Proceeds from:
Sales of investment securities		16,799			577,537
Calls and maturities of investment securities		829,838			977,108
Sales of other assets		25,576			37,084
Sales of loans originated for investment		39,184			172,946

Net cash provided by (used in) investing activities		(187,863	)		1,601,413

CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits		(1,159,343	)		241,586
Net increase (decrease) in short-term funding		1,508,288			(713,447	)
Repayment of long-term funding		(228,078	)		(510,291	)
Proceeds from issuance of long-term funding		297,240			400,000
Proceeds from issuance of common stock		—			478,358
Redemption of preferred stock		(262,500	)		—
Cash dividends on common stock		(3,487	)		(3,472	)
Cash dividends on preferred stock		(10,062	)		(13,125	)
Purchase of treasury stock		(616	)		(805	)

Net cash provided by (used in) financing activities		141,442			(121,196	)

Net increase in cash and cash equivalents		226,595			1,728,721
Cash and cash equivalents at beginning of period		868,162			820,692

Cash and cash equivalents at end of period	$	1,094,757		$	2,549,413

Supplemental disclosures of cash flow information:
Cash paid for interest	$	65,521		$	113,318
Cash (received) paid for income taxes		5,052			(49,937	)
Loans and bank premises transferred to other real estate owned		28,917			25,256
Capitalized mortgage servicing rights		6,584			10,283

See accompanying notes to consolidated financial statements.

6


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 Associated Banc-Corp’s 2010 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, 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. Certain amounts in the consolidated financial statements of prior periods have been reclassified to conform with the current period’s presentation. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year.

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, derivative financial instruments and hedging activities, and income taxes. Management has evaluated subsequent events for potential recognition or disclosure.

NOTE 2: New Accounting Pronouncements Adopted

In December 2010, the FASB issued guidance which modifies Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. In accordance with the guidance, for those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not if goodwill impairment exists, the guidance states an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist. The guidance was effective for reporting periods beginning after December 15, 2010. The Corporation adopted the accounting standard as of January 1, 2011, as required, with no material impact on its results of operations, financial position, and liquidity. See Note 7 for disclosures concerning goodwill.

In July 2010, the FASB issued guidance for improving disclosures about an entity’s allowance for loan losses and the credit quality of its loans. The guidance requires additional disclosure to facilitate financial statement users’ evaluation of the following: (1) the nature of credit risk inherent in the entity’s loan portfolio, (2) how that risk is analyzed and assessed in arriving at the allowance for loan losses, and (3) the changes and reasons for those changes in the allowance for loan losses. The increased disclosures as of the end of a reporting period are effective for periods ending on or after December 15, 2010. Increased disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 31, 2010. The Corporation adopted the accounting standard as of December 31, 2010, except for the activity-related disclosures which were adopted at the beginning of 2011, with no material impact on its results of operations, financial position, and liquidity. See Note 6 for additional disclosures required under this accounting standard.

In January 2010, the FASB issued an accounting standard providing additional guidance relating to fair value measurement disclosures. Specifically, companies will be required to separately disclose significant transfers into

7

and out of Level 1 and Level 2 measurements in the fair value hierarchy and the reasons for those transfers. Significance should generally be based on earnings and total assets or liabilities, or when changes are recognized in other comprehensive income, based on total equity. Companies may take different approaches in determining when to recognize such transfers, including using the actual date of the event or change in circumstances causing the transfer, or using the beginning or ending of a reporting period. For Level 3 fair value measurements, the new guidance requires presentation of separate information about purchases, sales, issuances and settlements. Additionally, the FASB also clarified existing fair value measurement disclosure requirements relating to the level of disaggregation, inputs, and valuation techniques. This accounting standard was effective at the beginning of 2010, except for the detailed Level 3 disclosures which were effective at the beginning of 2011. The Corporation adopted the accounting standard at the beginning of 2010, except for the detailed Level 3 disclosures which were adopted at the beginning of 2011, with no material impact on its results of operations, financial position, and liquidity. See Note 13 for additional disclosures required under this accounting standard.

NOTE 3: Earnings Per Common Share

Earnings per share are calculated utilizing the two-class method. Basic earnings per 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 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 shares adjusted for the dilutive effect of common stock awards (outstanding stock options, unvested restricted stock, and outstanding stock warrants). Presented below are the calculations for basic and diluted earnings per common share.


	For the three months ended						For the six months ended
	June 30,						June 30,
	2011			2010			2011			2010
				(In Thousands, except per share data)
Net income (loss)	$	34,382		$	(2,779	)	$	57,235		$	(29,168	)
Preferred stock dividends and discount accretion		(8,812	)		(7,377	)		(16,225	)		(14,742	)

Net income (loss) available to common equity	$	25,570		$	(10,156	)	$	41,010		$	(43,910	)

Common shareholder dividends		(1,733	)		(1,729	)		(3,466	)		(3,457	)
Unvested share-based payment awards		(12	)		(7	)		(21	)		(15	)

Undistributed earnings	$	23,825		$	(11,892	)	$	37,523		$	(47,382	)

Basic
Distributed earnings to common shareholders	$	1,733		$	1,729		$	3,466		$	3,457
Undistributed earnings to common shareholders		23,668			(11,892	)		37,293			(47,382	)

Total common shareholders earnings, basic	$	25,401		$	(10,163	)	$	40,759		$	(43,925	)

Diluted
Distributed earnings to common shareholders	$	1,733		$	1,729		$	3,466		$	3,457
Undistributed earnings to common shareholders		23,668			(11,892	)		37,293			(47,382	)

Total common shareholders earnings, diluted	$	25,401		$	(10,163	)	$	40,759		$	(43,925	)


Weighted average common shares outstanding		173,323			172,921			173,268			169,401
Effect of dilutive common stock awards		4			—			4			—

Diluted weighted average common shares outstanding		173,327			172,921			173,272			169,401

Basic earnings (loss) per common share	$	0.15		$	(0.06	)	$	0.24		$	(0.26	)

Diluted earnings (loss) per common share	$	0.15		$	(0.06	)	$	0.24		$	(0.26	)

Options to purchase approximately 6 million and 5 million shares were outstanding for the three and six months ended June 30, 2011, but excluded from the calculation of diluted earnings per common share as the effect would

8

have been anti-dilutive. As a result of the Corporation’s reported net loss for the three and six months ended June 30, 2010, all of the stock options outstanding were excluded from the computation of diluted earnings (loss) per common share.

NOTE 4: 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 shares and salary shares is their fair market value on the date of grant. The fair values of stock grants are amortized as compensation expense on a straight-line basis over the vesting period of the grants. 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 historical volatility of the Corporation’s stock. The following assumptions were used in estimating the fair value for options granted in the first half of 2011 and full year 2010:


	2011			2010

Dividend yield		2.00	%		3.00	%
Risk-free interest rate		2.30	%		2.70	%
Expected volatility		47.20	%		45.38	%
Weighted average expected life	6 years			6 years
Weighted average per share fair value of options	$	5.59		$	4.60

The Corporation is required to estimate potential forfeitures of stock grants and adjust compensation expense recorded accordingly. The estimate of forfeitures will be adjusted over the requisite service period to the extent that actual forfeitures differ, or are expected to differ, from such estimates. Changes in estimated forfeitures will be recognized in the period of change and will also impact the amount of stock compensation expense to be recognized in future periods.

A summary of the Corporation’s stock option activity for the year ended December 31, 2010 and for the six months ended June 30, 2011, is presented below.


						Weighted Average
				Weighted Average		Remaining		Aggregate Intrinsic
Stock Options	Shares			Exercise Price		Contractual Term		Value (000s)

Outstanding at December 31, 2009		6,708,618		$	26.16
Granted		1,348,474			13.24
Exercised		(14,868	)		12.71
Forfeited or expired		(740,766	)		20.95

Outstanding at December 31, 2010		7,301,458		$	24.33		5.01	$	2,460

Options exercisable at December 31, 2010		5,275,738		$	27.60		3.63	$	63

Outstanding at December 31, 2010		7,301,458		$	24.33
Granted		1,560,238			14.26
Exercised		(23,437	)		12.66
Forfeited or expired		(1,306,848	)		24.53

Outstanding at June 30, 2011		7,531,411		$	22.24		6.09	$	827

Options exercisable at June 30, 2011		4,958,251		$	26.38		4.54	$	278

9

The following table summarizes information about the Corporation’s nonvested stock option activity for the year ended December 31, 2010, and for the six months ended June 30, 2011.


				Weighted Average
Stock Options	Shares			Grant Date Fair Value

Nonvested at December 31, 2009		1,896,992		$	3.60
Granted		1,348,474			4.60
Vested		(920,969	)		3.93
Forfeited		(298,777	)		3.78

Nonvested at December 31, 2010		2,025,720		$	4.09

Granted		1,560,238			5.59
Vested		(884,669	)		3.77
Forfeited		(128,129	)		4.78

Nonvested at June 30, 2011		2,573,160		$	5.07

For the six months ended June 30, 2011 and for the year ended December 31, 2010, the intrinsic value of stock options exercised was immaterial. (Intrinsic value represents the amount by which the fair market value of the underlying stock exceeds the exercise price of the stock option.) The total fair value of stock options that vested was $3.3 million for the first half of 2011 and $3.6 million for the year ended December 31, 2010. For the six months ended June 30, 2011 and 2010, the Corporation recognized compensation expense of $2.6 million and $1.7 million, respectively, for the vesting of stock options. For the full year 2010, the Corporation recognized compensation expense of $3.4 million for the vesting of stock options. At June 30, 2011, the Corporation had $10.6 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 fourth quarter 2013.

The following table summarizes information about the Corporation’s restricted stock awards activity (excluding salary shares) for the year ended December 31, 2010, and for the six months ended June 30, 2011.


				Weighted Average
Restricted Stock	Shares			Grant Date Fair Value

Outstanding at December 31, 2009		527,131		$	19.67
Granted		604,343			12.38
Vested		(205,239	)		21.68
Forfeited		(153,973	)		17.12

Outstanding at December 31, 2010		772,262		$	13.94

Granted		558,601			14.42
Vested		(143,545	)		18.38
Forfeited		(91,114	)		13.65

Outstanding at June 30, 2011		1,096,204		$	13.88

The Corporation amortizes the expense related to restricted stock awards as compensation expense over the vesting period specified in the grant. Restricted stock awards granted during 2011 to the senior executive officers and the next 20 most highly compensated employees will vest ratably over a three year period, subject to the full repayment of the funds received under the Capital Purchase Program (“CPP”), and the restricted stock award recipient must continue to perform substantial services for the Corporation for at least two years after the date of grant. Restricted stock awards granted during 2010 to the senior executive officers and the next 20 most highly compensated employees will vest in 25% increments as the funds received under the CPP are repaid (i.e., 0% vest when less than 25% is repaid, 25% vest when 25-49% is repaid, 50% vest when 50-74% is repaid, 75% vest when 75-99% is repaid, and 100% vest when the full amount is repaid), and the restricted stock award recipients must continue to perform substantial services for the Corporation for at least two years after the date of grant. Expense for restricted stock awards of approximately $3.1 million and $2.8 million was recognized for the six months ended June 30, 2011 and 2010, respectively. The Corporation recognized approximately $5.6 million of expense for restricted stock awards for the full year 2010. The Corporation had $9.6 million of unrecognized compensation costs related to restricted stock awards at June 30, 2011, that is expected to be recognized over the remaining requisite service periods that extend predominantly through fourth quarter 2013.

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The Corporation recognizes expense related to salary shares as compensation expense. Each share is fully vested as of the date of grant and is subject to restrictions on transfer that lapse over a period of 9 to 28 months, based on the month of grant. The Corporation recognized compensation expense of $2.0 million on the granting of 139,371 salary shares (or an average cost per share of $14.25) for the six months ended June 30, 2011, $1.4 million on the granting of 101,844 shares (or an average cost per share of $13.55) for the six months ended June 30, 2010, and $3.3 million on the granting of 244,062 salary shares (or an average cost per share of $13.43) for the year ended December 31, 2010.

The Corporation issues shares from treasury, when available, or new shares upon the exercise of stock options, vesting of restricted stock awards, and the granting of salary shares. The Board of Directors has authorized management to repurchase shares of the Corporation’s common stock each quarter 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 opportunities, capital levels, growth prospects, and other investment opportunities, and is subject to restrictions under the CPP and the Memorandum of Understanding with the Federal Reserve Bank of Chicago.

NOTE 5: Investment Securities

The amortized cost and fair values of investment securities available for sale were as follows.


			Gross		Gross
			unrealized		unrealized
	Amortized cost		gains		losses			Fair value
			($ in Thousands)
June 30, 2011:
U.S. Treasury securities	$	1,099	$	7	$	—		$	1,106
Federal agency securities		27,156		36		—			27,192
Obligations of state and political subdivisions (municipal securities)		787,768		31,115		(671	)		818,212
Residential mortgage-related securities		4,441,048		138,350		(1,011	)		4,578,387
Commercial mortgage-related securities		12,499		551		—			13,050
Asset-backed securities ⁽¹⁾		243,387		193		(465	)		243,115
Other securities (debt and equity)		58,894		3,428		(1,350	)		60,972

Total investment securities available for sale	$	5,571,851	$	173,680	$	(3,497	)	$	5,742,034


			Gross		Gross
			unrealized		unrealized
	Amortized cost		gains		losses			Fair value
			($ in Thousands)
December 31, 2010:
U.S. Treasury securities	$	1,199	$	9	$	—		$	1,208
Federal agency securities		29,791		1		(25	)		29,767
Obligations of state and political subdivisions (municipal securities)		829,058		14,894		(5,350	)		838,602
Residential mortgage-related securities		4,831,481		117,530		(38,514	)		4,910,497
Commercial mortgage-related securities		7,604		149		—			7,753
Asset-backed securities ⁽¹⁾		299,459		3		(621	)		298,841
Other securities (debt and equity)		13,384		2,603		(1,314	)		14,673

Total investment securities available for sale	$	6,011,976	$	135,189	$	(45,824	)	$	6,101,341


(1)		The asset-backed securities position is largely comprised of senior, floating rate, tranches of student loan securities issued by SLM Corp (“Sallie Mae”) and guaranteed under the Federal Family Education Loan Program (“FFELP”).

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The amortized cost and fair values of investment securities available for sale at June 30, 2011, by maturity, 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.


($ in Thousands)	Amortized Cost		Fair Value

Due in one year or less	$	49,808	$	50,444
Due after one year through five years		159,225		164,076
Due after five years through ten years		543,481		566,183
Due after ten years		115,260		116,887

Total debt securities		867,774		897,590
Residential mortgage-related securities		4,441,048		4,578,387
Commercial mortgage-related securities		12,499		13,050
Asset-backed securities		243,387		243,115
Equity securities		7,143		9,892

Total investment securities available for sale	$	5,571,851	$	5,742,034

The following represents gross unrealized losses and the related fair value of investment securities available for sale, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at June 30, 2011.


	Less than 12 months					12 months or more					Total
	Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value
June 30, 2011:						($ in Thousands)
Obligations of state and political subdivisions (municipal securities)	$	(308	)	$	22,384	$	(363	)	$	3,042	$	(671	)	$	25,426
Residential mortgage-related securities		(982	)		191,159		(29	)		2,505		(1,011	)		193,664
Asset-backed securities		(465	)		221,959		—			—		(465	)		221,959
Other securities (debt and equity)		(42	)		34,628		(1,308	)		819		(1,350	)		35,447

Total	$	(1,797	)	$	470,130	$	(1,700	)	$	6,366	$	(3,497	)	$	476,496

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 the security has been in an unrealized loss position, changes in security ratings, financial condition of the issuer, as well as security and industry specific economic conditions. In addition, with regards to its debt securities, the Corporation may also evaluate payment structure, whether there are defaulted payments or expected defaults, prepayment speeds, and the value of any underlying collateral. For certain debt securities in unrealized loss positions, the Corporation prepares cash flow analyses to compare the present value of cash flows expected to be collected from the security with the amortized cost basis of the security.

Based on the Corporation’s evaluation, management does not believe any remaining unrealized loss at June 30, 2011, 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. At June 30, 2011, the number of investment securities in an unrealized loss position for less than 12 months for municipal, residential mortgage-related, and asset-backed securities was 30, 45 and 31, respectively. For investment securities in an unrealized loss position for 12 months or more, the number of individual securities in the municipal and residential mortgage-related categories was 4 and 5, respectively. The unrealized losses reported for residential mortgage-related securities relate to non-agency residential mortgage-related securities as well as residential mortgage-related securities issued by government agencies such as the Federal National Mortgage Association (“FNMA”) and the Federal Home Loan Mortgage Corporation (“FHLMC”). At June 30, 2011, the $1.4 million unrealized loss position on other securities was primarily comprised of 3 individual trust preferred debt securities pools. The Corporation currently does not intend to sell nor does it believe that it is probable it will be required to sell the securities contained in the above unrealized losses table before recovery of their amortized cost basis.

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The following is a summary of the credit loss portion of other-than-temporary impairment recognized in earnings on debt securities for 2010 and the six months ended June 30, 2011, respectively.


	Non-agency
	Mortgage-Related			Trust Preferred
$ in Thousands	Securities			Debt Securities			Total

Balance of credit-related other-than-temporary impairment at December 31, 2009	$	(17,472	)	$	(7,027	)	$	(24,499	)
Credit losses on newly identified impairment		(84	)		(2,992	)		(3,076	)

Balance of credit-related other-than-temporary impairment at December 31, 2010		(17,556	)		(10,019	)		(27,575	)
Adjustment for change in cash flows		—			—			—
Balance of credit-related other-than-temporary impairment at June 30, 2011	$	(17,556	)	$	(10,019	)	$	(27,575	)

For comparative purposes, the following represents gross unrealized losses and the related fair value of investment securities available for sale, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2010.


	Less than 12 months					12 months or more					Total
	Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value
December 31, 2010:						($ in Thousands)
Federal agency securities	$	(25	)	$	29,716	$	—		$	—	$	(25	)	$	29,716
Obligations of state and political subdivisions (municipal securities)		(4,983	)		237,902		(367	)		2,543		(5,350	)		240,445
Residential		(36,280	)		1,613,498		(2,234	)		43,306		(38,514	)		1,656,804
mortgage-related securities
Asset-backed securities		(621	)		293,568		—			—		(621	)		293,568
Other securities (debt and equity)		(1	)		100		(1,313	)		864		(1,314	)		964

Total	$	(41,910	)	$	2,174,784	$	(3,914	)	$	46,713	$	(45,824	)	$	2,221,497

Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank Stocks: At both June 30, 2011 and December 31, 2010, the Corporation had FHLB stock of $121.1 million, respectively. The Corporation had Federal Reserve Bank stock of $70.0 million and $69.9 million at June 30, 2011 and December 31, 2010, respectively. 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. The Corporation reviewed these securities for impairment in 2011 and 2010, including but not limited to, consideration of operating performance, as well as its liquidity and funding position. After evaluating all of these considerations, the Corporation believes the cost of these investments will be recovered and no impairment has been recorded on these securities during 2011 or 2010.

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NOTE 6: Loans, Allowance for Loan Losses, and Credit Quality

The period end loan composition was as follows.


	June 30,		December 31,
	2011		2010
	($ in Thousands)
Commercial and industrial	$	3,202,301	$	3,049,752
Commercial real estate		3,423,686		3,389,213
Real estate construction		533,804		553,069
Lease financing		54,001		60,254

Total commercial		7,213,792		7,052,288
Home equity		2,594,029		2,523,057
Installment		589,714		695,383

Total retail		3,183,743		3,218,440
Residential mortgage		2,692,054		2,346,007

Total consumer		5,875,797		5,564,447

Total loans	$	13,089,589	$	12,616,735

A summary of the changes in the allowance for loan losses was as follows.


	June 30,			December 31,
	2011			2010
	($ in Thousands)
Balance at beginning of period	$	476,813		$	573,533
Provision for loan losses		47,000			390,010
Charge offs		(117,521	)		(528,492	)
Recoveries		19,669			41,762

Net charge offs		(97,852	)		(486,730	)

Balance at end of period	$	425,961		$	476,813

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. In general, the change in the allowance for loan losses is a function of a number of factors, including but not limited to changes in the loan portfolio, net charge offs, trends in past due and impaired loans, and the level of potential problem loans. Management considers the allowance for loan losses a critical accounting policy, as assessing these numerous factors involves significant judgment.

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A summary of the changes in the allowance for loan losses by portfolio segment for the six months ended June 30, 2011, was as follows.


	Commercial
	and			Commercial			Real estate			Lease			Home						Residential
$ in Thousands	industrial			real estate			construction			financing			equity			Installment			mortgage			Total

Balance at Dec 31, 2010	$	137,770		$	165,584		$	56,772		$	7,396		$	55,090		$	17,328		$	36,873		$	476,813
Provision for loan losses		19,193			(12,739	)		(6,969	)		(5,200	)		48,586			4,742			(613	)		47,000
Charge offs		(28,870	)		(19,934	)		(21,920	)		(112	)		(23,896	)		(14,356	)		(8,433	)		(117,521	)
Recoveries		10,530			2,684			3,953			24			1,323			1,022			133			19,669

Balance at June 30, 2011	$	138,623		$	135,595		$	31,836		$	2,108		$	81,103		$	8,736		$	27,960		$	425,961


Allowance for loan losses:
Ending balance impaired loans individually evaluated for impairment	$	8,305		$	29,045		$	14,924		$	—		$	1,448		$	—		$	1,258		$	54,980
Ending balance impaired loans collectively evaluated for impairment	$	12,304		$	9,543		$	2,894		$	49		$	33,009		$	3,213		$	11,718		$	72,730
Ending balance all other loans collectively evaluated for impairment	$	118,014		$	97,007		$	14,018		$	2,059		$	46,646		$	5,523		$	14,984		$	298,251
Loans:
Ending balance impaired loans individually evaluated for impairment	$	51,207		$	164,163		$	63,801		$	11,685		$	9,854		$	3		$	15,463		$	316,176
Ending balance impaired loans collectively evaluated for impairment	$	42,736		$	65,523		$	19,687		$	1,213		$	48,376		$	4,738		$	69,505		$	251,778
Ending balance all other loans collectively evaluated for impairment	$	3,108,358		$	3,194,000		$	450,316		$	41,103		$	2,535,799		$	584,973		$	2,607,086		$	12,521,635

The allocation methodology used by the Corporation includes allocations for specifically identified impaired loans and loss factor allocations, (used for both criticized and non-criticized loan categories) with a component primarily based on historical loss rates and a component primarily based on other qualitative factors. Management allocates the allowance for loan losses by pools of risk within each loan portfolio. While the methodology used at June 30, 2011 and December 31, 2010 was generally comparable, several refinements were incorporated into the historical loss factor allocation process during the first quarter of 2011. The refinements, which impacted individual portfolio allocation amounts, did not materially impact the overall level of the allowance for loan losses.

At June 30, 2011, the allowance for loan loss allocations for the home equity and commercial loan portfolios increased, with all other loan portfolio allocations declining from December 31, 2010. The increase in the home equity allocation was due to higher loss rates and a slight decline in credit quality. The decline in the installment allocation was impacted by the $10 million write down on installment loans transferred to held for sale during the first quarter of 2011. Other portfolio allocations declined primarily due to improved credit quality metrics. The allocation of the allowance for loan losses by loan portfolio is made for analytical purposes and is not necessarily indicative of the trend of future loan losses in any particular category. The total allowance for loan losses is available to absorb losses from any segment of the loan portfolio.

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The following table presents nonaccrual loans, accruing loans past due 90 days or more, and restructured loans.


	June 30,		December 31,
	2011		2010
	($ in Thousands)

Nonaccrual loans	$	467,611	$	574,356
Accruing loans past due 90 days or more		12,123		3,418
Restructured loans (accruing)		100,343		79,935

The following table presents nonaccrual loans.


	June 30,		December 31,
	2011		2010
	($ in Thousands)

Commercial and industrial	$	71,183	$	99,845
Commercial real estate		193,495		223,927
Real estate construction		72,782		94,929
Lease financing		12,898		17,080

Total commercial		350,358		435,781
Home equity		46,777		51,712
Installment		3,724		10,544

Total retail		50,501		62,256
Residential mortgage		66,752		76,319

Total consumer		117,253		138,575

Total nonaccrual loans	$	467,611	$	574,356

Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Loans are generally placed on nonaccrual status when contractually past due 90 days or more as to interest or principal payments, unless the loan is well secured and in the process of collection. Additionally, whenever management becomes aware of facts or circumstances that may adversely impact the collectability of principal or interest on loans, it is management’s practice to place such loans on nonaccrual status immediately, rather than delaying such action until the loans become 90 days past due. When a loan is placed on nonaccrual status, previously accrued and uncollected interest is reversed, amortization of related deferred loan fees or costs is suspended, and income is recorded only to the extent that interest payments are subsequently received in cash and a determination has been made that the principal balance of the loan is collectible. If collectability of the principal is in doubt, payments received are applied to loan principal.

While an asset is in nonaccrual status, some or all of the cash interest payments received may be treated as interest income on a cash basis as long as the remaining recorded investment in the asset (i.e., after charge off of identified losses, if any) is deemed to be fully collectible. The determination as to the ultimate collectability of the asset’s remaining recorded investment must be supported by a current, well documented credit evaluation of the borrower’s financial condition and prospects for repayment, including consideration of the borrower’s sustained historical repayment performance and other relevant factors. A nonaccrual loan is returned to accrual status when all delinquent principal and interest payments become current in accordance with the terms of the loan agreement, the borrower has demonstrated a period of sustained performance, and the ultimate collectability of the total contractual principal and interest is no longer in doubt. A sustained period of repayment performance generally would be a minimum of six months.

Restructured loans involve the granting of some concession to the borrower involving the modification of terms of the loan, such as changes in payment schedule or interest rate, which generally would not otherwise be considered. Restructured loans can involve loans remaining on nonaccrual, moving to nonaccrual, or continuing on accrual status, depending on the individual facts and circumstances of the borrower. Generally, restructured loans remain on nonaccrual until the customer has attained a sustained period of repayment performance under the modified loan terms. However, performance prior to the restructuring, or significant events that coincide

16

with the restructuring, are considered in assessing whether the borrower can meet the new terms and whether the loan should be returned to or maintained on accrual status. If the borrower’s ability to meet the revised payment schedule is not reasonably assured, the loan remains on nonaccrual. See section “Future Accounting Pronouncements,” within Part I, Item 2, for new accounting guidance on restructured loans which will be effective for the third quarter of 2011.

The following table presents commercial loans by credit quality indicator at June 30, 2011.


			Special
	Pass		Mention		Potential Problem		Impaired		Total
					($ in Thousands)
Commercial and industrial	$	2,704,682	$	174,269	$	229,407	$	93,943	$	3,202,301
Commercial real estate		2,631,730		180,214		382,056		229,686		3,423,686
Real estate construction		360,806		26,324		63,186		83,488		533,804
Lease financing		39,326		378		1,399		12,898		54,001

Total commercial	$	5,736,544	$	381,185	$	676,048	$	420,015	$	7,213,792

The following table presents commercial loans by credit quality indicator at December 31, 2010.


	Pass		Special Mention		Potential Problem		Impaired		Total
					($ in Thousands)
Commercial and industrial	$	2,363,554	$	222,089	$	354,284	$	109,825	$	3,049,752
Commercial real estate		2,429,339		227,557		492,778		239,539		3,389,213
Real estate construction		311,810		32,180		91,618		117,461		553,069
Lease financing		40,101		456		2,617		17,080		60,254

Total commercial	$	5,144,804	$	482,282	$	941,297	$	483,905	$	7,052,288

The following table presents consumer loans by credit quality indicator at June 30, 2011.


	Performing		30-89 Days Past Due		Potential Problem		Impaired		Total
	($ in Thousands)
Home equity	$	2,516,884	$	14,400	$	4,515	$	58,230	$	2,594,029
Installment		580,965		3,792		216		4,741		589,714

Total retail		3,097,849		18,192		4,731		62,971		3,183,743
Residential mortgage		2,579,126		9,385		18,575		84,968		2,692,054

Total consumer	$	5,676,975	$	27,577	$	23,306	$	147,939	$	5,875,797

The following table presents consumer loans by credit quality indicator at December 31, 2010.


	Performing		30-89 Days Past Due		Potential Problem		Impaired		Total
	($ in Thousands)
Home equity	$	2,442,661	$	13,886	$	3,057	$	63,453	$	2,523,057
Installment		673,820		9,624		703		11,236		695,383

Total retail		3,116,481		23,510		3,760		74,689		3,218,440
Residential mortgage		2,222,916		8,722		18,672		95,697		2,346,007

Total consumer	$	5,339,397	$	32,232	$	22,432	$	170,386	$	5,564,447

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, an appropriate allowance for loan losses, and sound nonaccrual and charge off policies.

For commercial loans, management has determined pass to include credits that exhibit acceptable financial

17

statements, cash flow, and leverage. If any risk exists, it is mitigated by their structure, collateral, monitoring, or control. For consumer loans, performing loans include credits that are performing in accordance with the original contractual terms. 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 bank 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 definition. Commercial loans classified as special mention, potential problem, and impaired 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.

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The following table presents loans by past due status at June 30, 2011.


	30-89 Days		90 Days or More
	Past Due		Past Due		Total Past Due		Current		Total
	($ in Thousands)
Accruing loans
Commercial and industrial	$	7,581	$	4,216	$	11,797	$	3,119,321	$	3,131,118
Commercial real estate		61,240		7,297		68,537		3,161,654		3,230,191
Real estate construction		13,217		—		13,217		447,805		461,022
Lease financing		79		—		79		41,024		41,103

Total commercial		82,117		11,513		93,630		6,769,804		6,863,434
Home equity		14,818		—		14,818		2,532,434		2,547,252
Installment		3,851		610		4,461		581,529		585,990

Total retail		18,669		610		19,279		3,113,963		3,133,242
Residential mortgage		12,573		—		12,573		2,612,729		2,625,302

Total consumer		31,242		610		31,852		5,726,692		5,758,544

Total accruing loans	$	113,359	$	12,123	$	125,482	$	12,496,496	$	12,621,978


Nonaccrual loans
Commercial and industrial	$	7,500	$	28,436	$	35,936	$	35,247	$	71,183
Commercial real estate		15,015		82,967		97,982		95,513		193,495
Real estate construction		894		44,763		45,657		27,125		72,782
Lease financing		311		111		422		12,476		12,898

Total commercial		23,720		156,277		179,997		170,361		350,358
Home equity		4,281		31,480		35,761		11,016		46,777
Installment		533		950		1,483		2,241		3,724

Total retail		4,814		32,430		37,244		13,257		50,501
Residential mortgage		4,642		45,123		49,765		16,987		66,752

Total consumer		9,456		77,553		87,009		30,244		117,253

Total nonaccrual loans	$	33,176	$	233,830	$	267,006	$	200,605	$	467,611


Total loans
Commercial and industrial	$	15,081	$	32,652	$	47,733	$	3,154,568	$	3,202,301
Commercial real estate		76,255		90,264		166,519		3,257,167		3,423,686
Real estate construction		14,111		44,763		58,874		474,930		533,804
Lease financing		390		111		501		53,500		54,001

Total commercial		105,837		167,790		273,627		6,940,165		7,213,792
Home equity		19,099		31,480		50,579		2,543,450		2,594,029
Installment		4,384		1,560		5,944		583,770		589,714

Total retail		23,483		33,040		56,523		3,127,220		3,183,743
Residential mortgage		17,215		45,123		62,338		2,629,716		2,692,054

Total consumer		40,698		78,163		118,861		5,756,936		5,875,797

Total loans	$	146,535	$	245,953	$	392,488	$	12,697,101	$	13,089,589

19

The following table presents loans by past due status at December 31, 2010.


	30-89 Days		90 Days or More
	Past Due		Past Due		Total Past Due		Current		Total
	($ in Thousands)
Accruing loans
Commercial and industrial	$	33,013	$	—	$	33,013	$	2,916,894	$	2,949,907
Commercial real estate		46,486		2,096		48,582		3,116,704		3,165,286
Real estate construction		8,016		—		8,016		450,124		458,140
Lease financing		132		—		132		43,042		43,174

Total commercial		87,647		2,096		89,743		6,526,764		6,616,507
Home equity		13,886		796		14,682		2,456,663		2,471,345
Installment		9,624		526		10,150		674,689		684,839

Total retail		23,510		1,322		24,832		3,131,352		3,156,184
Residential mortgage		8,722		—		8,722		2,260,966		2,269,688

Total consumer		32,232		1,322		33,554		5,392,318		5,425,872

Total accruing loans	$	119,879	$	3,418	$	123,297	$	11,919,082	$	12,042,379


Nonaccrual loans
Commercial and industrial	$	3,426	$	57,215	$	60,641	$	39,204	$	99,845
Commercial real estate		12,429		82,675		95,104		128,823		223,927
Real estate construction		297		56,443		56,740		38,189		94,929
Lease financing		283		998		1,281		15,799		17,080

Total commercial		16,435		197,331		213,766		222,015		435,781
Home equity		5,727		37,169		42,896		8,816		51,712
Installment		1,091		7,141		8,232		2,312		10,544

Total retail		6,818		44,310		51,128		11,128		62,256
Residential mortgage		8,249		50,609		58,858		17,461		76,319

Total consumer		15,067		94,919		109,986		28,589		138,575

Total nonaccrual loans	$	31,502	$	292,250	$	323,752	$	250,604	$	574,356


Total loans
Commercial and industrial	$	36,439	$	57,215	$	93,654	$	2,956,098	$	3,049,752
Commercial real estate		58,915		84,771		143,686		3,245,527		3,389,213
Real estate construction		8,313		56,443		64,756		488,313		553,069
Lease financing		415		998		1,413		58,841		60,254

Total commercial		104,082		199,427		303,509		6,748,779		7,052,288
Home equity		19,613		37,965		57,578		2,465,479		2,523,057
Installment		10,715		7,667		18,382		677,001		695,383

Total retail		30,328		45,632		75,960		3,142,480		3,218,440
Residential mortgage		16,971		50,609		67,580		2,278,427		2,346,007

Total consumer		47,299		96,241		143,540		5,420,907		5,564,447

Total loans	$	151,381	$	295,668	$	447,049	$	12,169,686	$	12,616,735

20

The following table presents impaired loans at June 30, 2011.


	Recorded		Unpaid Principal				Average Recorded		Interest Income
	Investment		Balance		Related Allowance		Investment		Recognized *
					($ in Thousands)
Loans with a related allowance
Commercial and industrial	$	72,756	$	85,050	$	20,609	$	81,789	$	1,314
Commercial real estate		169,017		194,532		38,588		176,767		1,385
Real estate construction		62,404		78,171		17,818		68,221		416
Lease financing		1,213		1,213		49		1,689		—

Total commercial		305,390		358,966		77,064		328,466		3,115
Home equity		52,418		58,455		34,457		53,539		779
Installment		4,738		5,163		3,213		5,005		132

Total retail		57,156		63,618		37,670		58,544		911
Residential mortgage		77,313		84,376		12,976		79,601		927

Total consumer		134,469		147,994		50,646		138,145		1,838

Total loans	$	439,859	$	506,960	$	127,710	$	466,611	$	4,953


Loans with no related allowance
Commercial and industrial	$	21,187	$	26,720	$	—	$	21,785	$	351
Commercial real estate		60,669		74,524		—		66,830		600
Real estate construction		21,084		36,215		—		23,874		132
Lease financing		11,685		11,685		—		12,590		—

Total commercial		114,625		149,144		—		125,079		1,083
Home equity		5,812		7,891		—		6,275		19
Installment		3		3		—		3		—

Total retail		5,815		7,894		—		6,278		19
Residential mortgage		7,655		9,979		—		8,865		20

Total consumer		13,470		17,873		—		15,143		39

Total loans	$	128,095	$	167,017	$	—	$	140,222	$	1,122


Total
Commercial and industrial	$	93,943	$	111,770	$	20,609	$	103,574	$	1,665
Commercial real estate		229,686		269,056		38,588		243,597		1,985
Real estate construction		83,488		114,386		17,818		92,095		548
Lease financing		12,898		12,898		49		14,279		—

Total commercial		420,015		508,110		77,064		453,545		4,198
Home equity		58,230		66,346		34,457		59,814		798
Installment		4,741		5,166		3,213		5,008		132

Total retail		62,971		71,512		37,670		64,822		930
Residential mortgage		84,968		94,355		12,976		88,466		947

Total consumer		147,939		165,867		50,646		153,288		1,877

Total loans	$	567,954	$	673,977	$	127,710	$	606,833	$	6,075


*		Interest income recognized included $2.6 million of interest income recognized on accruing restructured loans for the six months ended June 30, 2011.

21

The following table presents impaired loans at December 31, 2010.


	Recorded		Unpaid Principal				Average Recorded		Interest Income
	Investment		Balance		Related Allowance		Investment		Recognized *
					($ in Thousands)
Loans with a related allowance
Commercial and industrial	$	80,507	$	100,297	$	29,900	$	93,966	$	2,399
Commercial real estate		137,808		151,723		33,487		146,880		3,224
Real estate construction		77,312		85,173		29,098		64,049		920
Lease financing		16,680		16,680		6,364		18,832		74

Total commercial		312,307		353,873		98,849		323,727		6,617
Home equity		59,975		61,894		28,933		62,805		1,652
Installment		11,231		11,649		7,776		12,481		294

Total retail		71,206		73,543		36,709		75,286		1,946
Residential mortgage		86,163		91,749		8,832		92,602		2,514

Total consumer		157,369		165,292		45,541		167,888		4,460

Total loans	$	469,676	$	519,165	$	144,390	$	491,615	$	11,077


Loans with no related allowance
Commercial and industrial	$	29,318	$	35,841	$	—	$	28,831	$	806
Commercial real estate		101,731		119,963		—		111,267		2,203
Real estate construction		40,149		58,662		—		55,376		1,483
Lease financing		400		400		—		745		—

Total commercial		171,598		214,866		—		196,219		4,492
Home equity		3,478		3,483		—		3,414		102
Installment		5		5		—		7		—

Total retail		3,483		3,488		—		3,421		102
Residential mortgage		9,534		11,267		—		10,675		246

Total consumer		13,017		14,755		—		14,096		348

Total loans	$	184,615	$	229,621	$	—	$	210,315	$	4,840


Total
Commercial and industrial	$	109,825	$	136,138	$	29,900	$	122,797	$	3,205
Commercial real estate		239,539		271,686		33,487		258,147		5,427
Real estate construction		117,461		143,835		29,098		119,425		2,403
Lease financing		17,080		17,080		6,364		19,577		74

Total commercial		483,905		568,739		98,849		519,946		11,109
Home equity		63,453		65,377		28,933		66,219		1,754
Installment		11,236		11,654		7,776		12,488		294

Total retail		74,689		77,031		36,709		78,707		2,048
Residential mortgage		95,697		103,016		8,832		103,277		2,760

Total consumer		170,386		180,047		45,541		181,984		4,808

Total loans	$	654,291	$	748,786	$	144,390	$	701,930	$	15,917


*		Interest income recognized included $4.0 million of interest income recognized on accruing restructured loans for the year ended December 31, 2010.

22

NOTE 7: Goodwill and Other Intangible Assets

Goodwill: Goodwill is not amortized but, instead, is subject to impairment tests on at least an annual basis. Consistent with prior years, the Corporation has elected to conduct its annual impairment testing in May. The annual analysis indicated that the estimated fair value exceeded carrying value (including goodwill) for both the banking and wealth segments. Therefore, a step two analysis was not required for these reporting units and no impairment charge was recorded. There were no impairment charges recorded in 2010 or through June 30, 2011. It is possible that a future conclusion could be reached that all or a portion of the Corporation’s goodwill may be impaired, in which case a non-cash charge for the amount of such impairment would be recorded in earnings. Such a charge, if any, would have no impact on tangible capital and would not affect the Corporation’s “well-capitalized” designation.

At June 30, 2011 and December 31, 2010, the Corporation had goodwill of $929 million, including goodwill of $907 million assigned to the banking segment and goodwill of $22 million assigned to the wealth management segment. There was no change in the carrying amount of goodwill for the six months ended June 30, 2011, and the year ended December 31, 2010.

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. The core deposit intangibles and mortgage servicing rights are assigned to the banking segment, while the other intangibles are assigned to the wealth management segment as of June 30, 2011. For core deposit intangibles and other intangibles, changes in the gross carrying amount, accumulated amortization, and net book value were as follows.


	At or for the			At or for the
	Six months ended			Year ended
	June 30, 2011			December 31, 2010
	($ in Thousands)
Core deposit intangibles:
Gross carrying amount	$	41,831		$	41,831
Accumulated amortization		(28,968	)		(27,121	)

Net book value	$	12,863		$	14,710


Amortization during the period	$	1,847		$	3,750

Other intangibles:
Gross carrying amount ⁽¹⁾	$	19,283		$	20,433
Accumulated amortization		(10,367	)		(11,008	)

Net book value	$	8,916		$	9,425

Amortization during the period	$	509		$	1,169


(1)		Other intangibles of $1.2 million were fully amortized during 2010 and have been removed from both the gross carrying amount and the accumulated amortization for 2011.

The Corporation sells residential mortgage loans in the secondary market and typically retains the right to service the loans sold. Upon sale, a mortgage servicing rights asset is capitalized, which represents the then current fair value of future net cash flows expected to be realized for performing servicing activities. Mortgage servicing rights, when purchased, are initially recorded at fair value. As the Corporation has not elected to subsequently measure any class of servicing assets under the fair value measurement method, the Corporation follows the amortization method (i.e., the lower of cost or fair value). 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. Mortgage servicing rights are carried at the lower of the initial capitalized amount, net of accumulated amortization, or estimated fair value, and are included in other intangible assets, net in the consolidated balance sheets.

23

The Corporation periodically evaluates its mortgage servicing rights asset for impairment. 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 reserve 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 reserve 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, “Commitments, Off-Balance Sheet Arrangements, and Contingent Liabilities,” for a discussion of the recourse provisions on serviced residential mortgage loans. See Note 13, “Fair Value Measurements,” 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.


	At or for the			At or for the
	Six months ended			Year ended
	June 30, 2011			December 31, 2010
	($ in Thousands)
Mortgage servicing rights:
Mortgage servicing rights at beginning of period	$	84,209		$	80,986
Additions		6,584			26,165
Amortization		(11,637	)		(22,942	)

Mortgage servicing rights at end of period	$	79,156		$	84,209

Valuation allowance at beginning of period		(20,300	)		(17,233	)
Additions, net		(5,763	)		(3,067	)

Valuation allowance at end of period		(26,063	)		(20,300	)

Mortgage servicing rights, net	$	53,093		$	63,909


Fair value of mortgage servicing rights	$	53,104		$	64,378
Portfolio of residential mortgage loans serviced for others (“servicing portfolio”)	$	7,367,000		$	7,453,000
Mortgage servicing rights, net to servicing portfolio		0.72	%		0.86	%
Mortgage servicing rights expense ⁽¹⁾	$	17,400		$	26,009


(1)		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.

24

The following table shows the estimated future amortization expense for amortizing intangible assets. The projections of amortization expense for the next five years are based on existing asset balances, the current interest rate environment, and prepayment speeds as of June 30, 2011. 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:


	Core Deposit		Other		Mortgage Servicing
	Intangibles		Intangibles		Rights
	($ in Thousands)
Six months ending December 31, 2011	$	1,800	$	500	$	10,900
Year ending December 31, 2012		3,200		1,000		18,500
Year ending December 31, 2013		3,100		900		14,800
Year ending December 31, 2014		2,900		900		11,600
Year ending December 31, 2015		1,400		800		8,900
Year ending December 31, 2016		300		800		6,400

NOTE 8: Long-term Funding

Long-term funding (funding with original contractual maturities greater than one year) was as follows.


	June 30,		December 31,
	2011		2010
	($ in Thousands)
Federal Home Loan Bank (“FHLB”) advances	$	800,502	$	1,000,528
Senior notes, net		298,663		—
Subordinated debt, net		167,531		195,436
Junior subordinated debentures, net		215,738		215,848
Other borrowed funds		1,740		1,793

Total long-term funding	$	1,484,174	$	1,413,605

FHLB advances: At June 30, 2011, long-term advances from the FHLB had maturities through 2020 and had weighted-average interest rates of 1.58%, compared to 1.66% at December 31, 2010. These advances all had fixed contractual rates at both June 30, 2011, and December 31, 2010.

Senior notes: In March 2011, the Corporation issued $300 million of senior notes at a discount. The senior notes mature on March 28, 2016 and have a fixed coupon interest rate of 5.125%.

Subordinated debt: In September 2008, the Corporation issued $26 million of 10-year subordinated debt with a 5-year no-call provision, and in August 2001, the Corporation issued $200 million of 10-year subordinated debt. The subordinated notes were each issued at a discount, and the September 2008 debt has a fixed coupon interest rate of 9.25%, while the August 2001 debt has a fixed coupon interest rate of 6.75%. The Corporation retired $30 million of the August 2001 debt in the third quarter of 2010 and paid an early termination penalty of $0.7 million (included in other noninterest expense on the consolidated statements of income). During the first quarter of 2011, the Corporation retired another $28 million of the August 2001 debt and paid an early termination penalty of $0.6 million (included in the other noninterest expense on the consolidated statements of income). Subordinated debt qualifies under the risk-based capital guidelines as Tier 2 supplementary capital for regulatory purposes, and is discounted in accordance with regulations when the debt has five years or less remaining to maturity. The remaining outstanding balance of $142 million on the August 2001 notes are due and payable on August 15, 2011 and, in accordance with regulatory guidelines, no longer qualify as Tier 2 capital.

Junior subordinated debentures: The Corporation has $180.4 million of junior subordinated debentures (“ASBC Debentures”), which carry a fixed rate of 7.625% and mature on June 15, 2032. Beginning May 30, 2007, the Corporation has had the right to redeem the ASBC Debentures, at par, and none were redeemed in 2010 or during the first half 2011. The carrying value of the ASBC Debentures was $179.7 million at both June 30, 2011 and December 31, 2010. With its October 2005 business combination, the Corporation acquired variable rate junior

25

subordinated debentures at a premium (the “SFSC Debentures”), from two equal issuances (contractually $30.9 million on a combined basis), of which one pays a variable rate adjusted quarterly based on the 90-day LIBOR plus 2.80% (or 3.07% at June 30, 2011) and matures April 23, 2034, and the other which pays a variable rate adjusted quarterly based on the 90-day LIBOR plus 3.45% (or 3.71% at June 30, 2011) and matures November 7, 2032. The Corporation has the right to redeem the SFSC Debentures, at par, on a quarterly basis and none were redeemed in 2010 or during the first half of 2011. The carrying value of the SFSC Debentures was $36.1 million at June 30, 2011 and $36.2 million at December 31, 2010.

NOTE 9: Other Comprehensive Income

A summary of activity in accumulated other comprehensive income follows.


	Six Months Ended						Year Ended
	June 30, 2011			June 30, 2010			December 31, 2010
				($ in Thousands)
Net income (loss)	$	57,235		$	(29,168	)	$	(856	)
Other comprehensive income (loss), net of tax:
Investment securities available for sale:
Net unrealized gains (losses)		80,763			38,869			(38,278	)
Reclassification adjustment for net (gains) losses realized in net income		58			(23,435	)		(24,917	)
Income tax (expense) benefit		(31,347	)		(5,586	)		24,785

Other comprehensive income (loss) on investment securities available for sale		49,474			9,848			(38,410	)
Defined benefit pension and postretirement obligations:
Prior service cost, net of amortization		233			233			467
Net loss, net of amortization		903			810			2,271
Income tax expense		(441	)		(566	)		(1,106	)

Other comprehensive income on pension and postretirement obligations		695			477			1,632
Derivatives used in cash flow hedging relationships:
Net unrealized losses		(374	)		(3,952	)		(4,542	)
Reclassification adjustment for net losses and interest expense for interest differential on derivatives realized in net income		2,962			3,000			6,013
Income tax (expense) benefit		(1,038	)		368			(499	)

Other comprehensive income (loss) on cash flow hedging relationships		1,550			(584	)		972

Total other comprehensive income (loss)		51,719			9,741			(35,806	)

Comprehensive income (loss)	$	108,954		$	(19,427	)	$	(36,662	)

NOTE 10: Income Taxes

For the first half of 2011, the Corporation recognized income tax expense of $17.5 million, compared to an income tax benefit of $32.8 million for the first half of 2010. The change in income tax was primarily due to the level of pretax income (loss) between the comparable six-month periods. The effective tax rate was 23.40% for the first half of 2011, compared to an effective tax benefit of (52.93%) for the first half of 2010. Income tax expense is also impacted by ongoing federal and state income tax audits and changes in tax law.

26

NOTE 11: Derivative and Hedging Activities

The Corporation uses derivative instruments primarily to hedge the variability in interest payments or protect the value of certain assets and liabilities recorded on its consolidated balance sheet from changes in interest rates. The predominant derivative and hedging activities include interest rate-related instruments (swaps, caps, collars, and corridors) foreign currency exchange forwards, 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-related instruments generally contain language outlining collateral pledging requirements for each counterparty. Collateral must be posted when the market value exceeds certain threshold limits which are determined from the credit ratings of each counterparty. The Corporation was required to pledge $81 million of investment securities as collateral at June 30, 2011, and pledged $94 million of investment securities as collateral at December 31, 2010.

The Corporation’s derivative and hedging instruments are recorded at fair value on the consolidated balance sheets. See Note 13, “Fair Value Measurements,” for additional fair value information and disclosures.

The table below identifies the balance sheet category and fair values of the Corporation’s derivative instruments designated as cash flow hedges.


								Weighted Average
	Notional						Balance Sheet
	Amount		Fair Value			Category		Receive Rate			Pay Rate			Maturity
	($ in Thousands)
June 30, 2011
Interest rate swaps — short-term funding	$	200,000	$	(3,634	)	Other liabilities			0.09	%		3.15	%	8 months

December 31, 2010
Interest rate swaps — short-term funding	$	200,000	$	(6,295	)	Other liabilities			0.19	%		3.15	%	14 months

The table below identifies the gains and losses recognized on the Corporation’s derivative instruments designated as cash flow hedges.

Amount of Gain /

(Loss) Recognized

in Income on

Category of Gain /

Derivatives

Amount of Gain

Category of (Gain)

Amount of (Gain) /

(Loss) Recognized

(Ineffective

/ (Loss) Recognized

/ Loss Reclassified

Loss Reclassified

in Income on

Portion and Amount

in OCI on

from AOCI into

Derivatives

Excluded from

Derivatives

Income (Effective

(Ineffective

Effectiveness

($ in Thousands)

(Effective Portion)

Portion)

Testing)

Six Months Ended June 30, 2011

Interest Expense

Interest rate swaps — short-term funding

$

(374

)

Short-term funding

$

2,962

Short-term funding

$

(6

)

Six Months Ended June 30, 2010

Interest Expense

Interest rate swaps — short-term funding

$

(3,952

)

Short-term funding

$

3,000

Short-term funding

$

(3

)

Cash flow hedges

The Corporation has variable-rate, short-term funding which expose the Corporation to variability in interest payments due to changes in interest rates. To manage the interest rate risk related to the variability of these interest payments, the Corporation has entered into various interest rate swap agreements.

During the third quarter of 2008, the Corporation entered into two interest rate swap agreements which hedge the interest rate risk in the cash flows of certain short-term, variable-rate funding. Hedge effectiveness is determined

27

using regression analysis. The Corporation recognized ineffectiveness of less than $0.1 million for the first half of 2011 (which increased interest expense), compared to ineffectiveness of less than $0.1 million for the first half of 2010 (which increased interest expense) and $0.2 million for full year 2010 (which increased interest expense) relating to these cash flow hedge relationships. No components of the derivatives change in fair value were excluded from the assessment of hedge effectiveness. Derivative gains and losses reclassified from accumulated other comprehensive income to current period earnings are included in interest expense on short-term funding (i.e., the line item in which the hedged cash flows are recorded). At June 30, 2011, accumulated other comprehensive income included a deferred after-tax net loss of $1.9 million related to these derivatives, compared to a deferred after-tax net loss of $3.5 million at December 31, 2010. The net after-tax derivative loss included in accumulated other comprehensive income at June 30, 2011, is projected to be reclassified into net interest income in conjunction with the recognition of interest payments on the variable-rate, short-term funding through September 2012.

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


							Weighted Average
	Notional					Balance Sheet	Receive			Pay
	Amount		Fair Value			Category	Rate⁽¹⁾			Rate⁽¹⁾			Maturity
	($ in Thousands)
June 30, 2011
Interest rate-related instruments — customer and mirror	$	1,372,965		54,789		Other assets		1.68	%		1.68	%	43 months
Interest rate-related instruments — customer and mirror		1,372,965		(62,935	)	Other liabilities		1.68	%		1.68	%	43 months
Interest rate lock commitments (mortgage)		151,497		1,308		Other assets		—			—			—
Forward commitments (mortgage)		203,089		(166	)	Other liabilities		—			—			—
Foreign currency exchange forwards		44,100		2,100		Other assets		—			—			—
Foreign currency exchange forwards		35,161		(1,871	)	Other liabilities		—			—			—

December 31, 2010
Interest rate-related instruments — customer and mirror	$	1,268,502		54,154		Other assets		1.78	%		1.78	%	41 months
Interest rate—related instruments — customer and mirror		1,268,502		(58,632	)	Other liabilities		1.78	%		1.78	%	41 months
Interest rate lock commitments (mortgage)		129,377		(78	)	Other liabilities		—			—			—
Forward commitments (mortgage)		281,000		5,617		Other assets		—			—			—
Foreign currency exchange forwards		56,584		1,530		Other assets		—			—			—
Foreign currency exchange forwards		48,652		(1,289	)	Other liabilities		—			—			—


(1)		Reflects the weighted average receive rate and pay rate for the interest rate swap derivative financial instruments only.

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)
	Gain / (Loss) Recognized in Income	Recognized in Income
		($ in Thousands)
Six Months Ended June 30, 2011
Interest rate-related instruments — customer and mirror, net	Capital market fees, net	$	(3,668	)
Interest rate lock commitments (mortgage)	Mortgage banking, net		1,386
Forward commitments (mortgage)	Mortgage banking, net		(5,783	)
Foreign exchange forwards, net	Capital market fees, net		(12	)

Six Months Ended June 30, 2010
Interest rate-related instruments — customer and mirror, net	Capital market fees, net	$	(2,572	)
Interest rate lock commitments (mortgage)	Mortgage banking, net		7,373
Forward commitments (mortgage)	Mortgage banking, net		(11,120	)
Foreign exchange forwards, net	Capital market fees, net		(76	)

Free Standing Derivatives

The Corporation enters into various derivative contracts which are designated as free standing derivative contracts. 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 sheet with changes in the fair value recorded as a component of Capital market fees, net, and typically include interest rate-related instruments (swaps, caps, collars, and corridors). The net impact for the first half of 2011 was a $3.7 million loss, while the net impact for the full year 2010 was a $1.9 million net loss and the net impact for the first half of 2010 was a $2.6 million net loss.

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Free standing derivatives are entered into primarily for the benefit of commercial customers through providing derivative products which enables the customer to manage their exposures to interest rate risk. 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.

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. The fair value of the mortgage derivatives at June 30, 2011, was a net gain of $1.1 million, comprised of the net gain of $1.3 million on interest rate lock commitments to originate residential mortgage loans held for sale to individual borrowers of approximately $151 million and the net loss of $0.2 million on forward commitments to sell residential mortgage loans to various investors of approximately $203 million. The fair value of the mortgage derivatives at December 31, 2010, was a net gain of $5.5 million, comprised of the net loss of $0.1 million on interest rate lock commitments to originate residential mortgage loans held for sale to individual borrowers of approximately $129 million and the net gain of $5.6 million on forward commitments to sell residential mortgage loans to various investors of approximately $281 million. The fair value of the mortgage derivatives at June 30, 2010, was a net loss of $0.6 million, comprised of the net gain of $6.0 million on interest rate lock commitments to originate residential mortgage loans held for sale to individual borrowers of approximately $265 million and the net loss of $6.6 million on forward commitments to sell residential mortgage loans to various investors of approximately $437 million.

Foreign currency derivatives

The Corporation provides foreign exchange services to customers. The Corporation may enter into a foreign currency 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. At June 30, 2011, the Corporation had $14 million in notional balances of foreign currency forwards related to loans, and $33 million in notional balances of foreign currency forwards related to customer transactions (with mirror foreign currency forwards of $33 million), which on a combined basis had a fair value of $0.2 million net gain. At December 31, 2010, the Corporation had $5 million in notional balances of foreign currency forwards related to loans, and $50 million in notional balances of foreign currency forwards related to customer transactions (with mirror foreign currency forwards of $50 million), which on a combined basis had a fair value of $0.3 million net gain. At June 30, 2010, the Corporation had $4 million in notional balances of foreign currency forwards related to loans, and $23 million in notional balances of foreign currency forwards related to customer transactions (with mirror foreign currency forwards of $23 million), which on a combined basis had a fair value of $0.2 million net gain.

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NOTE 12: Commitments, Off-Balance Sheet Arrangements, and Contingent Liabilities

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 and other commitments (see below) and derivative instruments (see Note 11). The following is a summary of lending-related commitments.


	June 30, 2011		December 31, 2010
	($ in Thousands)
Commitments to extend credit, excluding commitments to originate residential mortgage loans held for sale ^{(1) (2)}	$	4,019,334	$	3,862,208
Commercial letters of credit ⁽¹⁾		44,582		37,872
Standby letters of credit ⁽³⁾		326,408		362,275


(1)		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 June 30, 2011 or December 31, 2010.

(2)		Interest rate lock commitments to originate residential mortgage loans held for sale are considered derivative instruments and are disclosed in Note 11.

(3)		The Corporation has established a liability of $3.7 million and $3.9 million at June 30, 2011 and December 31, 2010, respectively, 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. As of June 30, 2011 and December 31, 2010, the Corporation had a reserve for losses on unfunded commitments totaling $14.9 million and $17.4 million, respectively, included in 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 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 11. 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 low-income housing, small- business commercial real estate, new market tax credit projects, and historic tax credit projects to promote the revitalization of low-to-moderate-income neighborhoods throughout the local communities of its bank subsidiary.

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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 June 30, 2011, was $41 million, included in other assets on the consolidated balance sheets, compared to $45 million at December 31, 2010. Related to these investments, the Corporation had remaining commitments to fund of $11 million at both June 30, 2011and December 31, 2010.

Contingent Liabilities

A lawsuit was filed against the Corporation in the United States District Court for the Western District of Wisconsin, on April 6, 2010. The lawsuit is styled as a class action lawsuit with the certification of the class pending. The suit alleges that the Corporation unfairly assesses and collects overdraft fees and seeks restitution of the overdraft fees, compensatory, consequential and punitive damages, and costs. On April 23, 2010, a Multi District Judicial Panel issued a conditional transfer order to consolidate this case into the overdraft fees Multi District Litigation pending in the United States District Court for the Southern District of Florida, Miami Division. The Corporation denies all claims and intends to vigorously defend itself. In addition to the above, in the ordinary course of business, the Corporation may be named as defendant in or be a party to various pending and threatened legal proceedings. Legal proceedings and contingencies have a high degree of uncertainty. When a loss from a contingency becomes probable and estimable, an accrual is established. The accrual reflects management’s estimate of the probable cost of resolution of the matter and is revised as facts and circumstances change. We have established accruals for certain matters. Given the indeterminate amounts sought in certain of these matters and the inherent unpredictability of such matters, it is possible that the results of such proceedings will have a material adverse effect on the Corporation’s business, financial position or results of operations in future periods.

The Corporation, as a member bank of Visa, Inc. (“Visa”) prior to Visa’s completion of their initial public offering (“IPO”) in March 2008, had certain indemnification obligations pursuant to Visa’s certificate of incorporation and bylaws and in accordance with their membership agreements. In accordance with Visa’s bylaws prior to the IPO, the Corporation could have been required to indemnify Visa for the Corporation’s proportional share of losses based on the pre-IPO membership interests. In contemplation of the IPO, Visa announced that it had completed restructuring transactions during the fourth quarter of 2007. As part of this restructuring, the Corporation’s indemnification obligation was modified to include only certain known litigation as of the date of the restructuring. This modification triggered a requirement to recognize a $2.3 million liability (included in other liabilities in the consolidated balance sheets) in 2007 equal to the fair value of the indemnification obligation. Based upon Visa’s revised liability estimate for litigation, including the current funding of litigation settlements, the Corporation recorded a $0.3 million reduction in the reserve for litigation losses and a corresponding reduction in the Visa escrow receivable during 2010. At both June 30, 2011 and December 31, 2010, the remaining reserve for unfavorable litigation losses related to Visa was $1.5 million.

In connection with the IPO in 2008, Visa retained a portion of the proceeds to fund an escrow account in order to resolve existing litigation settlements as well as to fund potential future litigation settlements. The Corporation’s initial interest in this escrow account was $2 million (included in other assets in the consolidated balance sheets). During 2010, Visa announced it had deposited additional amounts into the litigation escrow account, of which, the Corporation’s pro-rata share was $0.6 million. The remaining receivable related to the Visa escrow account was $1.5 million at June 30, 2011 and $1.3 million at December 31, 2010.

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. The Corporation’s agreements to sell residential mortgage loans in the normal course of business usually require general representations and warranties on the underlying loans sold, related to credit information, loan documentation, collateral, and insurability, which if subsequently are untrue or breached, could require the Corporation to repurchase certain loans affected. There have been insignificant instances of repurchase under general representations and warranties. To a much lesser degree, the Corporation may sell residential mortgage loans with limited recourse (limited in that the recourse period ends prior to the loan’s maturity, usually after

31

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 June 30, 2011, and December 31, 2010, there were approximately $47 million and $58 million, respectively, of residential mortgage loans sold with such recourse risk, upon which there have been insignificant instances of repurchase. Given that the underlying loans delivered to buyers are predominantly conventional residential first lien mortgages originated or purchased under our usual underwriting procedures, and that historical experience shows negligible losses and insignificant repurchase activity, management believes that losses and repurchases under the limited recourse provisions will continue to be insignificant.

In October 2004, the Corporation acquired a thrift. Prior to the acquisition, this thrift retained a subordinate position to the FHLB in the credit risk on the underlying 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 June 30, 2011 and December 31, 2010, there were $561 million and $667 million, respectively, of such residential mortgage loans with credit risk recourse, upon which there have been negligible historical losses to the Corporation.

At June 30, 2011 and December 31, 2010, the Corporation provided a credit guarantee on contracts to unrelated third parties in exchange for a fee. In the event of a customer default, pursuant to the credit recourse provided, the Corporation is required to reimburse the third party. The maximum amount of credit risk, in the event of nonperformance by the underlying borrowers, is limited to a defined contract liability. In the event of nonperformance, the Corporation has rights to the underlying collateral value securing the loan. The Corporation has an estimated fair value of approximately $0.2 million and $0.1 million related to these credit guarantee contracts at June 30, 2011 and December 31, 2010, respectively, recorded in other liabilities on the consolidated balance sheets.

For certain mortgage loans originated by the Corporation, borrowers may be required to obtain Private Mortgage Insurance (PMI) provided by third-party insurers. The Corporation entered into reinsurance treaties with certain PMI carriers which provided, among other things, for a sharing of losses within a specified range of the total PMI coverage in exchange for a portion of the PMI premiums. The Corporation’s reinsurance treaties typically provide that the Corporation will assume liability for losses once they exceed 5% of the aggregate risk exposure up to a maximum of 10% of the aggregate risk exposure. At June 30, 2011, the Corporation’s potential risk exposure was approximately $25 million. As of January 1, 2009, the Corporation discontinued providing reinsurance coverage for new loans in exchange for a portion of the PMI premium. The Corporation’s estimated liability for reinsurance losses, including estimated losses incurred but not yet reported, was $6.0 million and $4.5 million at June 30, 2011 and December 31, 2010, respectively.

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NOTE 13: Fair Value Measurements

The FASB issued an accounting standard (subsequently codified into ASC Topic 820, “Fair Value Measurements and Disclosures”) which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. This accounting standard applies to reported balances that are required or permitted to be measured at fair value under existing accounting pronouncements; accordingly, the standard amends numerous accounting pronouncements but does not require any new fair value measurements of reported balances. The standard also emphasizes that fair value (i.e., the price that would be received in an orderly transaction that is not a forced liquidation or distressed sale at the measurement date), among other things, is based on exit price versus entry price, should include assumptions about risk such as nonperformance risk in liability fair values, and is a market-based measurement, not an entity-specific measurement. When considering the assumptions that market participants would use in pricing the asset or liability, this accounting standard establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy). The fair value hierarchy prioritizes inputs used to measure fair value into three broad levels.


Level 1 inputs		Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Corporation has the ability to access.

Level 2 inputs		Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals.

Level 3 inputs		Level 3 inputs are unobservable inputs for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity.

In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Corporation’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

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. While the Corporation considered the unfavorable impact of recent economic challenges (including but not limited to weakened economic conditions, disruptions in capital markets, troubled or failed financial institutions, government intervention and actions) on quoted market prices for identical and similar financial instruments, and on inputs or assumptions used, the Corporation accepted the fair values determined under its valuation methodologies.

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. Level 1 investment securities primarily include U.S. Treasury, certain Federal agency, and exchange-traded debt and equity securities. 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. Examples of these investment securities include certain Federal agency securities, obligations of state and political subdivisions, mortgage-related securities, asset-backed securities, and other debt securities. 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. Level 3 securities primarily include trust preferred securities. 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

33

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 5, “Investment Securities,” for additional disclosure regarding the Corporation’s investment securities.

Derivative financial instruments (interest rate-related instruments): The Corporation uses interest rate swaps to manage its interest rate risk. In addition, the Corporation offers customer interest rate swaps, caps, collars, and corridors to service our customers’ needs, for which the Corporation simultaneously enters into offsetting derivative financial instruments (i.e., mirror interest rate swaps, caps, collars, and corridors) 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 11, “Derivative and Hedging Activities,” for additional disclosure regarding the Corporation’s derivative financial 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, collars, and corridors) 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 June 30, 2011, and December 31, 2010, 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 exchange): The Corporation provides foreign exchange services to customers. In addition, the Corporation may enter into a foreign currency 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 exchange forwards is determined using quoted prices of foreign 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.

Mortgage derivatives: Mortgage derivatives include interest rate lock commitments to originate residential mortgage loans held for sale to individual customers and forward commitments to sell residential mortgage loans to various investors. The Corporation relies on an internal valuation model to estimate the fair value of its interest rate lock commitments to originate residential mortgage loans held for sale, which includes grouping the interest rate lock commitments by interest rate and terms, applying an estimated pull-through rate based on historical experience, and then multiplying by quoted investor prices determined to be reasonably applicable to the loan commitment groups based on interest rate, terms, and rate lock expiration dates of the loan commitment groups.

34

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 11, “Derivative and Hedging Activities,” for additional disclosure regarding the Corporation’s mortgage derivatives.

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.

Loans Held for Sale: Loans held for sale, which consist generally of current production of certain fixed-rate, first-lien residential mortgage loans, are carried at the lower of cost or estimated fair value. The estimated fair value of the residential mortgage loans held for sale was based on what secondary markets are currently offering for portfolios with similar characteristics, which the Corporation classifies as a Level 2 nonrecurring fair value measurement.

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 contractual terms of the note agreement, including 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, with the amount of impairment based upon the loan’s observable market price, the estimated fair value of the collateral for collateral-dependent loans, or alternatively, the present value of the expected future cash flows discounted at the loan’s effective interest rate. The use of observable market price or estimated fair value of collateral on collateral-dependent loans is considered a fair value measurement subject to the fair value hierarchy. Appraised values are generally used on real estate collateral-dependent impaired loans, which the Corporation classifies as a Level 2 nonrecurring fair value measurement.

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 relies on an internal discounted cash flow model to estimate the fair value of its mortgage servicing rights. The Corporation uses a valuation model in conjunction with third party 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 reassesses and periodically adjusts the underlying inputs and assumptions used in the model to reflect market conditions and assumptions that a market participant would consider in valuing the mortgage servicing rights asset. 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. See Note 7, “Goodwill and Other Intangible Assets,” for additional disclosure regarding the Corporation’s mortgage servicing rights.

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The table below presents the Corporation’s investment securities available for sale, derivative financial instruments, and mortgage derivatives measured at fair value on a recurring basis as of June 30, 2011, and December 31, 2010, aggregated by the level in the fair value hierarchy within which those measurements fall.

Assets and Liabilities Measured at Fair Value on a Recurring Basis


			Fair Value Measurements Using
	June 30, 2011		Level 1		Level 2		Level 3
	($ in Thousands)
Assets:
Investment securities available for sale:
U.S. Treasury securities	$	1,106	$	1,106	$	—	$	—
Federal agency securities		27,192		47		27,145		—
Obligations of state and political subdivisions		818,212		—		818,212		—
Residential mortgage-related securities		4,578,387		—		4,578,387		—
Commercial mortgage-related securities		13,050		—		13,050		—
Asset-backed securities		243,115		—		243,115		—
Other securities (debt and equity)		60,972		12,911		46,421		1,640

Total investment securities available for sale	$	5,742,034	$	14,064	$	5,726,330	$	1,640
Derivatives (other assets)		58,197	$	—	$	56,889		1,308

Liabilities:
Derivatives (other liabilities)	$	68,606	$	—	$	68,440	$	166


			Fair Value Measurements Using
	December 31, 2010		Level 1		Level 2		Level 3
	($ in Thousands)
Assets:
Investment securities available for sale:
U.S. Treasury securities	$	1,208	$	1,208	$	—	$	—
Federal agency securities		29,767		51		29,716		—
Obligations of state and political subdivisions		838,602		—		838,602		—
Residential mortgage-related securities		4,910,497		—		4,910,497		—
Commercial mortgage-related securities		7,753		—		7,753		—
Asset-backed securities		298,841		—		298,841		—
Other securities (debt and equity)		14,673		12,002		999		1,672

Total investment securities available for sale	$	6,101,341	$	13,261	$	6,086,408	$	1,672
Derivatives (other assets)		61,301		—		55,684		5,617

Liabilities:
Derivatives (other liabilities)	$	66,294	$	—	$	66,216	$	78

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The table below presents a rollforward of the balance sheet amounts for the year ended December 31, 2010 and the six months ended June 30, 2011, for financial instruments measured on a recurring basis and classified within Level 3 of the fair value hierarchy.

Assets and Liabilities Measured at Fair Value
Using Significant Unobservable Inputs (Level 3)


	Investment Securities
($ in Thousands)	Available for Sale			Derivatives
Balance December 31, 2009	$	—		$	3,141
Transfers in		4,663			—
Total net gains (losses) included in income:
Net impairment losses on investment securities		(2,991	)		—
Mortgage derivative gain, net		—			2,398

Balance December 31, 2010	$	1,672		$	5,539

Total net losses included in income:
Mortgage derivative loss, net		—			(4,397	)
Total net losses included in other comprehensive income:
Investment securities losses		(32	)		—

Balance June 30, 2011	$	1,640		$	1,142

In valuing the investment securities available for sale classified within Level 3, the Corporation incorporated its own assumptions about future cash flows and discount rates adjusting for credit and liquidity factors. The Corporation also reviewed the underlying collateral and other relevant data in developing the assumptions for these investment securities.

The table below presents the Corporation’s loans held for sale, impaired loans, and mortgage servicing rights measured at fair value on a nonrecurring basis as of June 30, 2011 and December 31, 2010, aggregated by the level in the fair value hierarchy within which those measurements fall.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis


			Fair Value Measurements Using
	June 30, 2011		Level 1		Level 2		Level 3
	($ in Thousands)
Assets:
Loans held for sale	$	84,323	$	—	$	84,323	$	—
Loans ⁽¹⁾		206,605		—		206,605		—
Mortgage servicing rights		53,093		—		—		53,093


			Fair Value Measurements Using
	December 31, 2010		Level 1		Level 2		Level 3
	($ in Thousands)
Assets:
Loans held for sale	$	144,808	$	—	$	144,808	$	—
Loans ⁽¹⁾		279,179		—		279,179		—
Mortgage servicing rights		63,909		—		—		63,909


(1)		Represents collateral-dependent impaired loans, net, which are included in loans.

Certain nonfinancial assets measured at fair value on a nonrecurring basis include other real estate owned (upon initial recognition or subsequent impairment), nonfinancial assets and nonfinancial liabilities measured at fair value 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.

During the first half of 2011 and the full year 2010, 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. 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. Other real estate owned measured at fair value upon initial recognition totaled approximately $32 million for the six months ended June 30, 2011 and $55 million for the year ended December 31, 2010, respectively. In addition to other real estate owned measured at fair value upon initial

37

recognition, the Corporation also recorded write-downs to the balance of other real estate owned for subsequent impairment of $4 million, $5 million, and $10 million to noninterest expense for the six months ended June 30, 2011 and 2010, and the year ended December 31, 2010, respectively.

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.

The estimated fair values of the Corporation’s financial instruments at June 30, 2011 and December 31, 2010, were as follows:


	June 30, 2011				December 31, 2010
	Carrying				Carrying
	Amount		Fair Value		Amount			Fair Value
	($ in Thousands)
Financial assets:
Cash and due from banks	$	314,682	$	314,682	$	319,487		$	319,487
Interest-bearing deposits in other financial institutions		777,675		777,675		546,125			546,125
Federal funds sold and securities purchased under agreements to resell		2,400		2,400		2,550			2,550
Investment securities available for sale		5,742,034		5,742,034		6,101,341			6,101,341
Federal Home Loan Bank and Federal Reserve Bank stocks		191,075		191,075		190,968			190,968
Loans held for sale		84,323		85,322		144,808			144,808
Loans, net		12,663,628		11,064,121		12,139,922			10,568,980
Bank owned life insurance		539,395		539,395		533,069			533,069
Accrued interest receivable		70,230		70,230		73,982			73,982
Interest rate-related agreements (1)		54,789		54,789		54,154			54,154
Foreign currency exchange forwards		2,100		2,100		1,530			1,530
Interest rate lock commitments to originate residential mortgage loans held for sale		1,308		1,308		(78	)		(78	)
Financial liabilities:
Deposits	$	14,066,050	$	14,066,050	$	15,225,393		$	15,225,393
Short-term funding		3,255,670		3,255,670		1,747,382			1,747,382
Long-term funding		1,484,174		1,577,957		1,413,605			1,491,786
Accrued interest payable		18,748		18,748		17,163			17,163
Interest rate-related agreements (1)		66,569		66,569		64,927			64,927
Foreign currency exchange forwards		1,871		1,871		1,289			1,289
Standby letters of credit (2)		3,666		3,666		3,943			3,943
Forward commitments to sell residential mortgage loans		166		166		(5,617	)		(5,617	)


(1)		At both June 30, 2011 and December 31, 2010, the notional amount of cash flow hedge interest rate swap agreements was $200 million. See Note 11 for information on the fair value of derivative financial instruments.

(2)		At June 30, 2011 and December 31, 2010, the commitment on standby letters of credit was $0.3 billion and $0.4 billion, 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, federal funds sold and securities purchased under agreements to resell, and accrued interest receivable -For these short-term instruments, the carrying amount is a reasonable estimate of fair value.

Investment securities available for sale — The fair value of investment securities available for sale 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.

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

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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 of the residential mortgage loans held for sale was based on what secondary markets are currently offering for portfolios with similar characteristics.

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, lease financing, residential mortgage, home equity, and other installment. 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 owned life insurance — The fair value of bank owned life insurance approximates the carrying amount, because upon liquidation of these investments, the Corporation would receive the cash surrender value which equals the carrying amount.

Deposits — The fair value of deposits with no stated maturity such as noninterest-bearing demand deposits, savings, interest-bearing demand deposits, and money market accounts, is equal to the amount payable on demand as of the balance sheet date. The fair value of certificates of deposit 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 certificates of deposit is less than the carrying value, the carrying value is reported as the fair value of the certificates of deposit.

Accrued interest payable and short-term funding — For these short-term instruments, the carrying amount is a reasonable estimate of fair value.

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 funding.

Interest rate-related agreements — The fair value of interest rate swap, cap, collar, and corridor agreements is determined using discounted cash flow analysis on the expected cash flows of each derivative. 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.

Foreign currency exchange forwards — The fair value of the Corporation’s foreign exchange forwards is determined using quoted prices of foreign 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.

Standby letters of credit — The fair value of standby letters of credit represent 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.

Interest rate lock commitments to originate residential mortgage loans held for sale — The Corporation relies on an internal valuation model to estimate the fair value of its interest rate lock commitments to originate residential mortgage loans held for sale, which includes grouping the interest rate lock commitments by interest rate and terms, applying an estimated pull-through rate based on historical experience, and then multiplying by quoted investor prices determined to be reasonably applicable to the loan commitment groups based on interest rate, terms, and rate lock expiration dates of the loan commitment groups.

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Forward commitments to sell residential mortgage loans — The Corporation 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.

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 full-time employees. 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. The 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 RAP and a smaller acquired plan that was frozen in December 31, 2004, are collectively referred to below as the “Pension Plan.”

Associated also provides healthcare access for eligible retired employees in its Postretirement Plan (the “Postretirement Plan”). Retirees who are at least 55 years of age with 5 years of service are eligible to participate in the plan. The Corporation has no plan assets attributable to the plan. The Corporation reserves the right to terminate or make changes to the plan at any time.

The components of net periodic benefit cost for the Pension and Postretirement Plans for the three and six months ended June 30, 2011 and 2010, and for the full year 2010 were as follows.


	Three Months Ended						Six Months Ended						Year Ended
	June 30,						June 30,						December 31,
	2011			2010			2011			2010			2010
	($ in Thousands)
Components of Net Periodic Benefit Cost

Pension Plan:
Service cost	$	2,613		$	2,475		$	5,225		$	4,950		$	9,622
Interest cost		1,589			1,590			3,180			3,180			6,377
Expected return on plan assets		(3,220	)		(3,019	)		(6,440	)		(6,038	)		(12,152	)
Amortization of prior service cost		18			18			35			35			72
Amortization of actuarial loss		451			405			903			810			1,601

Total net periodic benefit cost	$	1,451		$	1,469		$	2,903		$	2,937		$	5,520


Postretirement Plan:
Interest cost	$	50		$	58		$	100		$	115		$	227
Amortization of prior service cost		99			99			198			198			395
Amortization of actuarial gain		—			—			—			—			(3	)

Total net periodic benefit cost	$	149		$	157		$	298		$	313		$	619

The Corporation’s funding policy is to pay at least the minimum amount required by the funding requirements of federal law and regulations, with consideration given to the maximum funding amounts allowed. The Corporation

40

regularly reviews the funding of its Pension Plan. The Corporation made a contribution of $6 million to its Pension Plan in the first quarter of 2011.

NOTE 15: Segment Reporting

Selected financial and descriptive information is required to be provided about reportable operating segments, considering a “management approach” concept as the basis for identifying reportable segments. The management approach is based on the way that management organizes the segments within the enterprise for making operating decisions, allocating resources, and assessing performance. Consequently, the segments are evident from the structure of the enterprise’s internal organization, focusing on financial information that an enterprise’s chief operating decision-makers use to make decisions about the enterprise’s operating matters.

The Corporation’s primary segment is banking, conducted through its bank and lending subsidiaries. For purposes of segment disclosure, as allowed by the governing accounting statement, these entities have been combined as one segment that have similar economic characteristics and the nature of their products, services, processes, customers, delivery channels, and regulatory environment are similar. Banking consists of lending and deposit gathering (as well as other banking-related products and services) to businesses, governmental units, and consumers (including mortgages, home equity lending, and card products) and the support to deliver, fund, and manage such banking services.

The wealth management segment provides products and a variety of fiduciary, investment management, advisory, and Corporate agency services to assist customers in building, investing, or protecting their wealth, including insurance, brokerage, and trust/asset management. The other segment includes intersegment eliminations and residual revenues and expenses, representing the difference between actual amounts incurred and the amounts allocated to operating segments.

41

Selected segment information is presented below.


				Wealth
	Banking			Management			Other			Consolidated Total
	($ in Thousands)
As of and for the six months ended June 30, 2011

Net interest income	$	307,599		$	247		$	—		$	307,846
Provision for loan losses		47,000			—			—			47,000
Noninterest income		100,211			53,084			(4,721	)		148,574
Depreciation and amortization		29,326			585			—			29,911
Other noninterest expense		263,058			46,451			(4,721	)		304,788
Income taxes		14,968			2,518			—			17,486

Net income	$	53,458		$	3,777		$	—		$	57,235

% of consolidated net income		93	%		7	%		—	%		100	%

Total assets	$	21,990,882		$	143,676		$	(86,083	)	$	22,048,475

% of consolidated total assets		100	%		—	%		—	%		100	%

Total revenues *	$	407,810		$	53,331		$	(4,721	)	$	456,420
% of consolidated total revenues		89	%		12	%		(1	)%		100	%

As of and for the six months ended June 30, 2010

Net interest income	$	328,631		$	384		$	—		$	329,015
Provision for loan losses		263,010			—			—			263,010
Noninterest income		142,092			50,100			(2,158	)		190,034
Depreciation and amortization		27,972			624			—			28,596
Other noninterest expense		250,651			40,913			(2,158	)		289,406
Income taxes		(36,374	)		3,579			—			(32,795	)

Net income (loss)	$	(34,536	)	$	5,368		$	—		$	(29,168	)

% of consolidated net income (loss)		N/M			N/M			N/M			N/M

Total assets	$	22,700,950		$	132,060		$	(72,951	)	$	22,760,059

% of consolidated total assets		100	%		—	%		—	%		100	%

Total revenues *	$	470,723		$	50,484		$	(2,158	)	$	519,049
% of consolidated total revenues		91	%		9	%		—	%		100	%


N/M — Not Meaningful

*		Total revenues for this segment disclosure are defined to be the sum of net interest income plus noninterest income, net of mortgage servicing rights amortization.

42


				Wealth
	Banking			Management			Other			Consolidated Total
	($ in Thousands)
As of and for the three months ended June 30, 2011

Net interest income	$	154,008		$	115		$	—		$	154,123
Provision for loan losses		16,000			—			—			16,000
Noninterest income		45,803			27,081			(2,361	)		70,523
Depreciation and amortization		14,547			290			—			14,837
Other noninterest expense		128,020			24,158			(2,361	)		149,817
Income taxes		8,511			1,099			—			9,610

Net income	$	32,733		$	1,649		$	—		$	34,382

% of consolidated net income		95	%		5	%		—	%		100	%

Total assets	$	21,990,882		$	143,676		$	(86,083	)	$	22,048,475

% of consolidated total assets		100	%		—	%		—	%		100	%

Total revenues *	$	199,811		$	27,196		$	(2,361	)	$	224,646
% of consolidated total revenues		89	%		12	%		(1	)%		100	%

As of and for the three months ended June 30, 2010

Net interest income	$	159,619		$	174		$	—		$	159,793
Provision for loan losses		97,665			—			—			97,665
Noninterest income		62,485			25,086			(1,098	)		86,473
Depreciation and amortization		13,959			312			—			14,271
Other noninterest expense		126,574			20,873			(1,098	)		146,349
Income taxes		(10,870	)		1,630			—			(9,240	)

Net income (loss)	$	(5,224	)	$	2,445		$	—		$	(2,779	)

% of consolidated net income (loss)		N/M			N/M			N/M			N/M

Total assets	$	22,700,950		$	132,060		$	(72,951	)	$	22,760,059

% of consolidated total assets		100	%		—	%		—	%		100	%

Total revenues *	$	222,104		$	25,260		$	(1,098	)	$	246,266
% of consolidated total revenues		90	%		10	%		—	%		100	%


N/M — Not Meaningful

*		Total revenues for this segment disclosure are defined to be the sum of net interest income plus noninterest income, net of mortgage servicing rights amortization.

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

Special Note Regarding Forward-Looking Statements

Statements made in this document and in documents that are incorporated by reference which are not purely historical are forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995, including any statements regarding descriptions of management’s plans, objectives, or goals for future operations, products or services, and forecasts of its revenues, earnings, or other measures of performance. Forward-looking statements are based on current management expectations and, by their nature, are subject to risks and uncertainties. These statements may be identified by the use of words such as “believe,” “expect,” “anticipate,” “plan,” “estimate,” “should,” “will,” “intend,” or similar expressions.

Shareholders should note that many factors, some of which are discussed elsewhere in this document and in the documents that are incorporated by reference, could affect the future financial results of the Corporation and could cause those results to differ materially from those expressed in forward-looking statements contained or incorporated by reference in this document. These factors, many of which are beyond the Corporation’s control, include the following:

•

operating, legal, and regulatory risks, including risks relating to our allowance for loan losses and impairment of goodwill;

•

economic, political, and competitive forces affecting the Corporation’s banking, securities, asset management, insurance, and credit services businesses;

•

integration risks related to acquisitions;

•

impact on net interest income from changes in monetary policy and general economic conditions; and

•

the risk that the Corporation’s analyses of these risks and forces could be incorrect and/or that the strategies developed to address them could be unsuccessful.

These factors should be considered in evaluating the forward-looking statements, and undue reliance should not be placed on such statements. Forward-looking statements speak only as of the date they are made. The Corporation undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

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 Form 10-Q and should be read in conjunction therewith.

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, derivative financial instruments and hedging activities, and income taxes.

The consolidated financial statements of the Corporation are prepared in conformity with U.S. generally accepted accounting principles and follow general practices within the industries in which it operates. This preparation requires management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, actual results could differ from the estimates, assumptions, and judgments reflected in the financial statements. Certain policies inherently have a greater reliance on the use of estimates, assumptions, and judgments and, as such, have a greater possibility of producing results that could be materially different than originally reported. Management

44

believes the following policies are both important to the portrayal of the Corporation’s financial condition and results of operations and require subjective or complex judgments and, therefore, management considers the following to be critical accounting policies. The critical accounting policies are discussed directly with the Audit Committee of the Corporation’s Board of Directors.

Allowance for Loan Losses: Management’s evaluation process used to determine the appropriateness of the allowance for loan losses is subject to the use of estimates, assumptions, and judgments. The evaluation process combines many factors: management’s ongoing review and grading of the loan portfolio, consideration of historical loan loss and delinquency experience, trends in past due and nonaccrual loans, risk characteristics of the various classifications of loans, 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 probable credit losses. Because current economic conditions can change and future events are inherently difficult to predict, the anticipated amount of estimated loan losses, and therefore the appropriateness of the allowance for loan losses, could change significantly. As an integral part of their examination process, various regulatory agencies also review the allowance for loan losses. Such agencies may require additions to the allowance for loan losses or may require that certain loan balances be charged off or downgraded into criticized loan categories when their credit evaluations differ from those of management, based on their judgments about information available to them at the time of their examination. The Corporation believes the level of the allowance for loan losses is appropriate as recorded in the consolidated financial statements. See Note 6, “Loans, Allowance for Loan Losses, and Credit Quality,” of the notes to consolidated financial statements and section “Allowance for Loan Losses.”

Goodwill Impairment Assessment: Goodwill is not amortized but, instead, is subject to impairment tests on at least an annual basis or more frequently if an event occurs or circumstances change that reduce the fair value of a reporting unit below its carrying amount. The impairment testing process is conducted by assigning net assets and goodwill to each reporting unit. The fair value of each reporting unit is compared to the recorded book value, “step one”. If the fair value of the reporting unit exceeds its carrying value, goodwill is not considered impaired and “step two” is not considered necessary. If the carrying value of a reporting unit exceeds its fair value, the impairment test continues (“step two”) by comparing the carrying value of the reporting unit’s goodwill to the implied fair value of goodwill. The implied fair value is computed by adjusting all assets and liabilities of the reporting unit to current fair value with the offset adjustment to goodwill. The adjusted goodwill balance is the implied fair value of the goodwill. An impairment charge is recognized if the carrying fair value of goodwill exceeds the implied fair value of goodwill.

The Corporation conducted its annual impairment testing in May 2011. The step one analysis conducted for the banking segment and wealth segment indicated that the estimated fair value exceeded carrying value (including goodwill) for both segments. Therefore, a step two analysis was not required for these reporting units. The Corporation engaged an independent valuation firm to assist in the computation of the fair value estimates of each reporting unit as part of its impairment assessment. The valuation utilized market and income approach methodologies and applied a weighted average to each in order to determine the fair value of each reporting unit. Goodwill impairment testing is considered a “critical accounting estimate” as estimates and assumptions are made about future performance and cash flows, as well as other prevailing market factors. In the event that we conclude that all or a portion of our goodwill may be impaired, a noncash charge for the amount of such impairment would be recorded in earnings. Such a charge would have no impact on tangible capital. A decline in our stock price or occurrence of a triggering event following any of our quarterly earnings releases and prior to the filing of the periodic report for that period could, under certain circumstances, cause us to re-perform a goodwill impairment test and result in an impairment charge being recorded for that period which was not reflected in such earnings release.

In connection with obtaining an independent third party valuation, management provides certain information and assumptions that is utilized in the implied fair value calculation. Assumptions critical to the process include discount rates, asset and liability growth rates, and other income and expense estimates. The Corporation provided the best information currently available to estimate future performance for each reporting unit; however, future adjustments to these projections may be necessary if conditions differ substantially from the assumptions utilized in making these assumptions. See also, Note 7 “Goodwill and Other Intangible Assets,” of the notes to the consolidated financial statements.

45

Mortgage Servicing Rights Valuation: The fair value of the Corporation’s mortgage servicing rights asset is important to the presentation of the consolidated financial statements since the mortgage servicing rights are carried on the consolidated balance sheet at the lower of amortized cost or estimated fair value. Mortgage servicing rights do not trade in an active open market with readily observable prices. As such, like other participants in the mortgage banking business, the Corporation relies on an internal discounted cash flow model to estimate the fair value of its mortgage servicing rights. The use of an internal discounted cash flow model involves judgment, particularly of estimated prepayment speeds of underlying mortgages serviced and the overall level of interest rates. Loan type and note interest rate are the predominant risk characteristics of the underlying loans used to stratify capitalized mortgage servicing rights for purposes of measuring impairment. The Corporation periodically reviews the assumptions underlying the valuation of mortgage servicing rights. In addition, the Corporation consults periodically with third parties as to the assumptions used and to determine that the Corporation’s valuation is consistent with the third party valuation. While the Corporation believes that the values produced by its internal model are indicative of the fair value of its mortgage servicing rights portfolio, these values can change significantly depending upon key factors, such as the then current interest rate environment, estimated prepayment speeds of the underlying mortgages serviced, and other economic conditions. The proceeds that might be received should the Corporation actually consider a sale of some or all of the mortgage servicing rights portfolio could differ from the amounts reported at any point in time.

Mortgage servicing rights are carried at the lower of amortized cost or estimated fair value and are assessed for impairment at each reporting date. Impairment is assessed based on the 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. However, the extent to which interest rates impact the value of the mortgage servicing rights asset depends, in part, on the magnitude of the changes in market interest rates and the differential between the then current market interest rates for mortgage loans and the mortgage interest rates included in the mortgage servicing portfolio. Management recognizes that the volatility in the valuation of the mortgage servicing rights asset will continue. To better understand the sensitivity of the impact of prepayment speeds on the value of the mortgage servicing rights asset at June 30, 2011 (holding all other factors unchanged), if prepayment speeds were to increase 25%, the estimated value of the mortgage servicing rights asset would have been approximately $7.9 million (or 15%) lower, while if prepayment speeds were to decrease 25%, the estimated value of the mortgage servicing rights asset would have been approximately $9.9 million (or 19%) higher. The Corporation believes the mortgage servicing rights asset is properly recorded in the consolidated financial statements. See Note 7, “Goodwill and Other Intangible Assets,” and Note 13, “Fair Value Measurements,” of the notes to consolidated financial statements and section “Noninterest Income.”

Derivative Financial Instruments and Hedging Activities: In various aspects of its business, the Corporation uses derivative financial instruments to modify exposures to changes in interest rates and market prices for other financial instruments. Derivative instruments are required to be carried at fair value on the balance sheet with changes in the fair value recorded directly in earnings. To qualify for and maintain hedge accounting, the Corporation must meet formal documentation and effectiveness evaluation requirements both at the hedge’s inception and on an ongoing basis. The application of the hedge accounting policy requires strict adherence to documentation and effectiveness testing requirements, judgment in the assessment of hedge effectiveness, identification of similar hedged item groupings, and measurement of changes in the fair value of hedged items. If in the future derivative financial instruments used by the Corporation no longer qualify for hedge accounting, the impact on the consolidated results of operations and reported earnings could be significant. When hedge accounting is discontinued, the Corporation would continue to carry the derivative on the balance sheet at its fair value; however, for a cash flow derivative, changes in its fair value would be recorded in earnings instead of

46

through other comprehensive income, and for a fair value derivative, the changes in fair value of the hedged asset or liability would no longer be recorded through earnings. See also Note 11, “Derivative and Hedging Activities,” and Note 13 “Fair Value Measurements,” of the notes to consolidated financial statements and section “Interest Rate Risk.”

Income Taxes: The assessment of tax assets and liabilities involves the use of estimates, assumptions, interpretations, and judgment concerning certain accounting pronouncements and federal and state tax codes. There can be no assurance that future events, such as court decisions or positions of federal and state taxing authorities, will not differ from management’s current assessment, the impact of which could be significant to the consolidated results of operations and reported earnings. Quarterly assessments are performed to determine if valuation allowances are necessary. Assessing the need for, or sufficiency of, a valuation allowance requires management to evaluate all available evidence, both positive and negative, including the recent trend of quarterly earnings. Positive evidence necessary to overcome the negative evidence includes whether future taxable income in sufficient amounts and character within the carryback and carryforward periods is available under the tax law, including the use of tax planning strategies. When negative evidence (e.g., cumulative losses in recent years, history of operating loss or tax credit carryforwards expiring unused) exists, more positive evidence than negative evidence will be necessary. As a result of the pre-tax losses incurred during 2009 and 2010, the Corporation is in a cumulative pre-tax loss position for financial statement purposes. This represents significant negative evidence in the assessment of whether the deferred tax assets will be realized. However, the Corporation has concluded that based on the level of positive evidence, it is more likely than not that the deferred tax asset will be realized. In making this determination, the Corporation has considered the positive evidence associated with future taxable income, tax planning strategies, and reversing taxable temporary differences in future periods. Most significantly, the Corporation relied upon its ability to generate future taxable income, exclusive of reversing temporary differences, over a relatively short time period. However, there is no guarantee that the tax benefits associated with the remaining deferred tax assets will be fully realized. The Corporation believes the tax assets and liabilities are properly recorded in the consolidated financial statements. See Note 10, “Income Taxes,” of the notes to consolidated financial statements and section “Income Taxes.”

Segment Review

As described in Note 15, “Segment Reporting,” of the notes to consolidated financial statements, the Corporation’s primary reportable segment is banking. Banking consists of lending and deposit gathering (as well as other banking-related products and services) to businesses, governmental units, and consumers (including mortgages, home equity lending, and card products), and the support to deliver, fund, and manage such banking services. The Corporation’s wealth management segment provides products and a variety of fiduciary, investment management, advisory, and Corporate agency services to assist customers in building, investing, or protecting their wealth, including insurance, brokerage, and trust/asset management.

Note 15, “Segment Reporting,” of the notes to consolidated financial statements, indicates that the banking segment represents 89% of total revenues (as defined in the Note) for the first six months of 2011. The Corporation’s profitability is predominantly dependent on net interest income, noninterest income, the level of the provision for loan losses, noninterest expense, and taxes of its banking segment. The consolidated discussion therefore predominantly describes the banking segment results. The critical accounting policies primarily affect the banking segment, with the exception of income taxes and goodwill impairment assessment, which affects both the banking and wealth management segments (see section “Critical Accounting Policies”).

The contribution from the wealth management segment to consolidated total revenues (as defined and disclosed in Note 15, “Segment Reporting,” of the notes to consolidated financial statements) was approximately 12% for the first half of 2011, compared to 9% for the comparable period in 2010. Wealth management segment revenues were up $2.8 million (6%) and expenses were up $5.5 million (13%) between the comparable six month periods of 2011 and 2010. Wealth segment assets (which consist predominantly of cash equivalents, investments, customer receivables, goodwill and intangibles) were up $11.6 million (9%) between June 30, 2011 and June 30, 2010, predominantly due to higher cash and cash equivalents. The major components of wealth management revenues are trust fees, insurance fees and commissions, and brokerage commissions, which are individually discussed in

47

section “Noninterest Income.” The major expenses for the wealth management segment are personnel expense (61% of total segment noninterest expense for the first six months of 2011, compared to 63% of total segment noninterest expense for the comparable period in 2010), as well as occupancy, processing, and other costs, which are covered generally in the consolidated discussion in section “Noninterest Expense.”

Results of Operations — Summary

The Corporation recorded net income of $57.2 million for the six months ended June 30, 2011, compared to a net loss of $29.2 million for the six months ended June 30, 2010. Net income available to common equity was $41.0 million for the six months ended June 30, 2011, or net income of $0.24 for both basic and diluted earnings per common share. Comparatively, net loss available to common equity for the six months ended June 30, 2010, was $43.9 million, or a net loss of $0.26 for both basic and diluted earnings per common share. The net interest margin for the first half of 2011 was 3.30% compared to 3.29% for the first half of 2010.

TABLE 1
Summary Results of Operations: Trends
($ in Thousands, except per share data)


	2nd Qtr.			1^st Qtr.			4^th Qtr.			3^rd Qtr.			2^nd Qtr.
	2011			2011			2010			2010			2010
Net income (loss) (Quarter)	$	34,382		$	22,853		$	14,008		$	14,304		$	(2,779	)
Net income (loss) (Year-to-date)		57,235			22,853			(856	)		(14,864	)		(29,168	)

Net income (loss) available to common equity (Quarter)	$	25,570		$	15,440		$	6,608		$	6,915		$	(10,156	)
Net income (loss) available to common equity (Year-to-date)		41,010			15,440			(30,387	)		(36,995	)		(43,910	)

Earnings (loss) per common share — basic (Quarter)	$	0.15		$	0.09		$	0.04		$	0.04		$	(0.06	)
Earnings (loss) per common share — basic (Year-to-date)		0.24			0.09			(0.18	)		(0.22	)		(0.26	)

Earnings (loss) per common share — diluted (Quarter)	$	0.15		$	0.09		$	0.04		$	0.04		$	(0.06	)
Earnings (loss) per common share — diluted (Year-to-date)		0.24			0.09			(0.18	)		(0.22	)		(0.26	)

Return on average assets (Quarter)		0.64	%		0.43	%		0.25	%		0.25	%		(0.05	)%
Return on average assets (Year-to-date)		0.54			0.43			(0.00	)		(0.09	)		(0.26	)

Return on average equity (Quarter)		4.63	%		2.92	%		1.74	%		1.77	%		(0.35	)%
Return on average equity (Year-to-date)		3.75			2.92			(0.03	)		(0.63	)		(1.86	)

Return on average common equity (Quarter)		3.79	%		2.36	%		0.98	%		1.02	%		(1.52	)%
Return on average common equity (Year-to-date)		3.08			2.36			(1.14	)		(1.85	)		(3.34	)

Return on average tangible common equity (Quarter) ⁽¹⁾		5.85	%		3.67	%		1.52	%		1.58	%		(2.37	)%
Return on average tangible common equity (Year-to-date) ⁽¹⁾		4.78			3.67			(1.77	)		(2.89	)		(5.22	)

Efficiency ratio (Quarter) ⁽²⁾		72.58	%		72.67	%		70.27	%		67.36	%		64.38	%
Efficiency ratio (Year-to-date) ⁽²⁾		72.62			72.67			66.04			64.65			63.34

Efficiency ratio, fully taxable equivalent (Quarter) ⁽²⁾		70.79	%		70.36	%		68.76	%		65.05	%		63.20	%
Efficiency ratio, fully taxable equivalent (Year-to-date) ⁽²⁾		70.57			70.36			64.32			62.85			61.79

Net interest margin (Quarter)		3.29	%		3.32	%		3.13	%		3.08	%		3.22	%
Net interest margin (Year-to-date)		3.30			3.32			3.20			3.22			3.29


(1)		Return on average tangible common equity = Net income available to common equity divided by average common equity excluding average goodwill and other intangible assets (net of mortgage servicing rights). This is a non-GAAP financial measure.

(2)		See Table 1A for a reconciliation of this non-GAAP measure.

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TABLE 1A
Reconciliation of Non-GAAP Measure


	2^nd Qtr.			1^st Qtr.			4^th Qtr.			3rd Qtr.			2^nd Qtr.
	2011			2011			2010			2010			2010
Efficiency ratio (Quarter) ^(a)		72.58	%		72.67	%		70.27	%		67.36	%		64.38	%
Taxable equivalent adjustment (Quarter)		(1.73	)		(1.71	)		(1.66	)		(1.68	)		(1.56	)
Asset sale gains / losses, net (Quarter)		(0.06	)		(0.60	)		0.15			(0.63	)		0.38

Efficiency ratio, fully taxable equivalent (Quarter) ^(b)		70.79	%		70.36	%		68.76	%		65.05	%		63.20	%

Efficiency ratio (Year-to-date) ^(a)		72.62	%		72.67	%		66.04	%		64.65	%		63.34	%
Taxable equivalent adjustment (Year-to-date)		(1.71	)		(1.71	)		(1.59	)		(1.58	)		(1.54	)
Asset sale gains / losses, net (Year-to-date)		(0.34	)		(0.60	)		(0.13	)		(0.22	)		(0.01	)

Efficiency ratio, fully taxable equivalent (Year-to-date)^(b)		70.57	%		70.36	%		64.32	%		62.85	%		61.79	%


(a)		Efficiency ratio is defined by the Federal Reserve guidance as noninterest expense divided by the sum of net interest income plus noninterest income, excluding investment securities gains/losses, net.

(b)		Efficiency ratio, fully taxable equivalent, is noninterest expense divided by the sum of taxable equivalent net interest income plus noninterest income, excluding investment securities gains/losses, net and asset sale gains/losses, net. This efficiency ratio is presented on a taxable equivalent basis, which adjusts net interest income for the tax-favored status of certain loan and investment securities. Management believes this measure to be the preferred industry measurement of net interest income as it enhances the comparability of net interest income arising from taxable and tax-exempt sources and it excludes certain specific revenue items (such as investment securities gains/losses, net and asset sale gains/losses, net).

Net Interest Income and Net Interest Margin

Net interest income on a taxable equivalent basis for the six months ended June 30, 2011, was $318.6 million, a decrease of $22.4 million or 6.6% versus the comparable period last year. As indicated in Tables 2 and 3, the decrease in taxable equivalent net interest income was primarily attributable to unfavorable volume variances (as changes in the balances and mix of earning assets and interest-bearing liabilities lowered taxable equivalent net interest income by $19.1 million) and to a lesser extent to unfavorable rate variances (as the impact of changes in the interest rate environment and product pricing reduced taxable equivalent net interest income by $3.3 million).

The net interest margin for the first half of 2011 was 3.30%, 1 bp higher than 3.29% for the same period in 2010. This comparable period increase was a function of a 4 bp increase in interest rate spread and a 3 bp lower contribution from net free funds (due principally to lower rates on interest-bearing liabilities reducing the value of noninterest-bearing deposits and other net free funds). The 4 bp improvement in interest rate spread was the net result of a 21 bp decrease in the cost of interest-bearing liabilities and a 17 bp decrease in the yield on earning assets.

The Federal Reserve left interest rates unchanged during 2010 and the first six months of 2011. For the remainder of 2011, the Corporation anticipates modest pressure on the net interest margin from the continued low rate environment, modest loan growth and the net effect of the funding for the expected repurchase of the remaining preferred shares issued under the CPP. The Corporation expects to repurchase the remaining CPP shares during the third or fourth quarter of 2011.

The yield on earning assets was 4.00% for the first half of 2011, 17 bp lower than the comparable period last year. The yield on securities and short-term investments decreased 31 bp (to 2.98%), impacted by the lower interest rate environment and prepayment speeds of mortgage-related securities purchased at a premium. Loan yields were down 12 bp, (to 4.52%), due to the repricing of adjustable rate loans and competitive pricing pressures in a low interest rate environment.

The rate on interest-bearing liabilities of 0.90% for the first half of 2011 was 21 bp lower than the same period in 2010. Rates on interest-bearing deposits were down 17 bp (to 0.65%, reflecting the low rate environment and a targeted reduction of higher cost deposit products). The cost of short and long-term funding decreased 113 bp (to 1.56%), with the cost of short-term funding down 52 bp while the cost of long-term funding increased 17 bp.

Average earning assets were $19.4 billion for the first half of 2011, a decrease of $1.5 billion or 7.1% from the comparable period last year. Average loans declined $0.8 billion, while average securities and short-term investments decreased $0.7 billion. The decrease in average loans was comprised of decreases in commercial loans (down $1.2 billion) and retail loans (down $0.2 billion), while residential mortgage loans increased (up $0.6 million).

Average interest-bearing liabilities of $15.1 billion for the first half of 2011 were $1.6 billion or 9.6% lower than the

49

first half of 2010. In keeping with the Corporation’s funding strategy, the Corporation continued to reduce noncustomer network and brokered deposits during the quarter. On average, interest-bearing deposits declined $3.2 billion (primarily attributable to $1.4 billion reduction in network transaction deposits, a $1.1 billion reduction in interest-bearing demand deposits, and a $0.3 billion reduction in Brokered CDs), while noninterest-bearing demand deposits (a principal component of net free funds) were up $0.2 billion. Average short and long-term funding balances increased $1.6 billion between the comparable six-month periods, primarily attributable to a $1.2 billion increase in customer funding and a $0.8 billion increase in other short-term funding as average long-term funding declined $0.4 billion.

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TABLE 2
Net Interest Income Analysis
($ in Thousands)


	Six months ended June 30, 2011							Six months ended June 30, 2010
			Interest		Average					Interest		Average
	Average		Income/		Yield/			Average		Income/		Yield/
	Balance		Expense		Rate			Balance		Expense		Rate

Earning assets:
Loans: ^{(1) (2) (3)}
Commercial	$	7,012,007	$	153,566		4.41	%	$	8,256,254	$	175,869		4.29	%
Residential mortgage		2,592,749		55,179		4.26			2,008,087		50,251		5.02
Retail		3,235,533		80,025		4.97			3,395,044		88,626		5.25

Total loans		12,840,289		288,770		4.52			13,659,385		314,746		4.64
Investment securities		5,773,545		94,351		3.27			5,449,542		114,087		4.19
Other short-term investments		751,114		2,896		0.77			1,726,778		3,985		0.46

Investments and other ⁽¹⁾		6,524,659		97,247		2.98			7,176,320		118,072		3.29

Total earning assets		19,364,948		386,017		4.00			20,835,705		432,818		4.17
Other assets, net		2,067,081							2,037,998

Total assets	$	21,432,029						$	22,873,703


Interest-bearing liabilities:
Interest-bearing deposits:
Savings deposits	$	958,629	$	571		0.12	%	$	886,045	$	541		0.12	%
Interest-bearing demand deposits		1,788,112		1,369		0.15			2,876,779		3,676		0.26
Money market deposits		5,093,854		8,894		0.35			6,321,344		16,999		0.54
Time deposits, excluding Brokered CDs		2,735,182		22,284		1.64			3,378,329		33,489		2.00

Total interest-bearing deposits,
excluding Brokered CDs		10,575,777		33,118		0.63			13,462,497		54,705		0.82
Brokered CDs		349,356		2,032		1.17			637,055		2,400		0.76

Total interest-bearing deposits		10,925,133		35,150		0.65			14,099,552		57,105		0.82
Short and long-term funding		4,160,335		32,249		1.56			2,588,696		34,698		2.69

Total interest-bearing liabilities		15,085,468		67,399		0.90			16,688,248		91,803		1.11

Noninterest-bearing demand deposits		3,223,485							3,000,264
Other liabilities		48,879							19,393
Stockholders’ equity		3,074,197							3,165,798

Total liabilities and equity	$	21,432,029						$	22,873,703


Interest rate spread						3.10	%						3.06	%
Net free funds						0.20	%						0.23

Net interest income, taxable equivalent, and net interest margin			$	318,618		3.30	%			$	341,015		3.29	%

Taxable equivalent adjustment				10,772							12,000

Net interest income			$	307,846						$	329,015


(1)		The yield on tax exempt loans and securities is computed on a taxable 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.

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TABLE 2
Net Interest Income Analysis
($ in Thousands)


	Three months ended June 30, 2011							Three months ended June 30, 2010
			Interest		Average					Interest		Average
	Average		Income/		Yield/			Average		Income/		Yield/
	Balance		Expense		Rate			Balance		Expense		Rate
Earning assets:
Loans: ^(1)(2)(3)
Commercial	$	7,114,930	$	77,122		4.35	%	$	8,036,688	$	85,974		4.29	%
Residential mortgage		2,657,740		28,032		4.22			1,996,448		24,781		4.97
Retail		3,232,234		40,033		4.96			3,363,574		43,892		5.23

Total loans		13,004,904		145,187		4.47			13,396,710		154,647		4.63
Investment securities		5,689,728		47,359		3.33			5,176,340		53,984		4.17
Other short-term investments		736,660		1,437		0.78			2,025,587		2,213		0.44

Investments and other ⁽¹⁾		6,426,388		48,796		3.04			7,201,927		56,197		3.12

Total earning assets		19,431,292		193,983		4.00			20,598,637		210,844		4.10
Other assets, net		2,094,863							2,000,058

Total assets	$	21,526,155						$	22,598,695


Interest-bearing liabilities:
Interest-bearing deposits:
Savings deposits	$	999,748	$	308		0.12	%	$	913,347	$	291		0.13	%
Interest-bearing demand deposits		1,811,525		738		0.16			2,833,530		1,898		0.27
Money market deposits		5,039,056		4,206		0.33			6,398,892		8,778		0.55
Time deposits, excluding Brokered CDs		2,655,944		10,667		1.61			3,305,825		16,035		1.95

Total interest-bearing deposits, excluding Brokered CDs		10,506,273		15,919		0.61			13,451,594		27,002		0.81
Brokered CDs		320,741		982		1.23			614,005		1,358		0.89

Total interest-bearing deposits		10,827,014		16,901		0.63			14,065,599		28,360		0.81
Short and long-term funding		4,434,500		17,627		1.59			2,343,119		16,725		2.86

Total interest-bearing liabilities		15,261,514		34,528		0.91			16,408,718		45,085		1.10

Noninterest-bearing demand deposits		3,225,675							2,990,594
Other liabilities		62,126							13,088
Stockholders’ equity		2,976,840							3,186,295

Total liabilities and equity	$	21,526,155						$	22,598,695


Interest rate spread						3.09	%						3.00	%
Net free funds						0.20							0.22

Net interest income, taxable equivalent, and net interest margin			$	159,455		3.29	%			$	165,759		3.22	%

Taxable equivalent adjustment				5,332							5,966

Net interest income			$	154,123						$	159,793


(1)		The yield on tax exempt loans and securities is computed on a taxable 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.

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TABLE 3
Volume / Rate Variance — Taxable Equivalent Basis
($ in Thousands)


	Comparison of									Comparison of
	Six months ended June 30, 2011 versus 2010									Three months ended June 30, 2011 versus 2010
				Variance Attributable to									Variance Attributable to
	Income/Expense									Income/Expense
	Variance (1)			Volume			Rate			Variance (1)			Volume			Rate

INTEREST INCOME: (2)
Loans:
Commercial	$	(22,303	)	$	(27,129	)	$	4,826		$	(8,852	)	$	(9,978	)	$	1,126
Residential mortgage		4,928			13,233			(8,305	)		3,251			7,368			(4,117	)
Retail		(8,601	)		(4,065	)		(4,536	)		(3,859	)		(1,676	)		(2,183	)

Total loans		(25,976	)		(17,961	)		(8,015	)		(9,460	)		(4,286	)		(5,174	)
Investment securities		(19,736	)		6,466			(26,202	)		(6,625	)		4,999			(11,624	)
Other short-term investments		(1,089	)		(2,931	)		1,842			(776	)		(1,906	)		1,130

Investments and other		(20,825	)		3,535			(24,360	)		(7,401	)		3,093			(10,494	)

Total interest income	$	(46,801	)	$	(14,426	)	$	(32,375	)	$	(16,861	)	$	(1,193	)	$	(15,668	)

INTEREST EXPENSE:
Interest-bearing deposits:
Savings deposits	$	30		$	44		$	(14	)	$	17		$	27		$	(10	)
Interest-bearing demand deposits		(2,307	)		(1,120	)		(1,187	)		(1,160	)		(556	)		(604	)
Money market deposits		(8,105	)		(2,888	)		(5,217	)		(4,572	)		(1,608	)		(2,964	)
Time deposits, excluding brokered CDs		(11,205	)		(5,789	)		(5,416	)		(5,368	)		(2,863	)		(2,505	)

Interest-bearing deposits, excluding Brokered CDs		(21,587	)		(9,753	)		(11,834	)		(11,083	)		(5,000	)		(6,083	)
Brokered CDs		(368	)		(1,351	)		983			(376	)		(786	)		410

Total interest-bearing deposits		(21,955	)		(11,104	)		(10,851	)		(11,459	)		(5,786	)		(5,673	)
Short and long-term funding		(2,449	)		15,774			(18,223	)		902			10,499			(9,597	)

Total interest expense		(24,404	)		4,670			(29,074	)		(10,557	)		4,713			(15,270	)


Net interest income, taxable equivalent	$	(22,397	)	$	(19,096	)	$	(3,301	)	$	(6,304	)	$	(5,906	)	$	(398	)


(1)		The change in interest due to both rate and volume has been allocated proportionately to volume variance and rate variance based on the relationship of the absolute dollar change in each.

(2)		The yield on tax exempt loans and securities is computed on a taxable equivalent basis using a tax rate of 35% for all periods presented.

Provision for Loan Losses

The provision for loan losses for the first half of 2011 was $47 million, compared to $263 million for the first half of 2010 and $390 million for the full year of 2010. Net charge offs were $98 million for first half 2011, compared to $269 million for the first half 2010 and $487 million for the full year of 2010. Annualized net charge offs as a percent of average loans for first half 2011 were 1.54%, compared to 3.97% for the first half of 2010 and 3.69% for the full year of 2010. At June 30, 2011, the allowance for loan losses was $426 million, down from $568 million at June 30, 2010 and $477 million at December 31, 2010. The ratio of the allowance for loan losses to total loans was 3.25%, compared to 4.51% at June 30, 2010 and 3.78% at December 31, 2010. Nonaccrual loans at June 30, 2011, were $468 million, compared to $976 million at June 30, 2010, and $574 million at December 31, 2010. See Tables 8 and 9.

The provision for loan 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 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 on 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 “Allowance for Loan Losses,” and “Nonaccrual Loans, Potential Problem Loans, and Other Real Estate Owned.”

53

Noninterest Income

Noninterest income for the first half of 2011 was $136.9 million, down $42.0 million (23.5%) from the first half of 2010. Core fee-based revenue (as defined in Table 4 below) was $122.2 million, down $9.2 million from the comparable period last year. Net mortgage banking was a loss of $1.5 million compared to net mortgage banking income of $10.9 million for the first half of 2010. Net losses on investment securities and asset sales combined were $2.3 million, compared to a net gain of $23.3 million for the first half of 2010. All other noninterest income categories combined were $18.5 million, up $5.2 million versus the comparable period last year. For the remainder of 2011, the Corporation expects continued pressure on core-fee based revenues due to the challenging economic environment, regulatory changes, and changes in checking products and customer behavior.

TABLE 4
Noninterest Income
($ in Thousands)


	2^nd Qtr.			2^nd Qtr.			Dollar			Percent			YTD			YTD			Dollar			Percent
	2011			2010			Change			Change			2011			2010			Change			Change

Trust service fees	$	10,012		$	9,517		$	495			5.2	%	$	19,843		$	18,873		$	970			5.1	%
Service charges on deposit accounts		19,112			26,446			(7,334	)		(27.7	)		38,176			52,505			(14,329	)		(27.3	)
Card-based and other nondeposit fees		15,747			14,739			1,008			6.8			31,345			28,551			2,794			9.8
Retail commission income		16,475			15,722			753			4.8			32,856			31,539			1,317			4.2

Core fee-based revenue		61,346			66,424			(5,078	)		(7.6	)		122,220			131,468			(9,248	)		(7.0	)
Mortgage banking income		8,031			9,279			(1,248	)		(13.4	)		15,925			19,307			(3,382	)		(17.5	)
Mortgage servicing rights expense		11,351			3,786			7,565			199.8			17,400			8,407			8,993			107.0

Mortgage banking, net		(3,320	)		5,493			(8,813	)		(160.4	)		(1,475	)		10,900			(12,375	)		(113.5	)
Capital market fees, net		(890	)		(136	)		(754	)		N/M			1,488			(6	)		1,494			N/M
Bank owned life insurance (“BOLI”) income		3,500			4,240			(740	)		(17.5	)		7,086			7,496			(410	)		(5.5	)
Other		4,364			3,539			825			23.3			9,871			5,800			4,071			70.2

Subtotal (“fee income”)		65,000			79,560			(14,560	)		(18.3	)		139,190			155,658			(16,468	)		(10.6	)
Asset sale gains (losses), net		(209	)		1,477			(1,686	)		(114.2	)		(2,195	)		(164	)		(2,031	)		N/M
Investment securities gains (losses), net		(36	)		(146	)		110			(75.3	)		(58	)		23,435			(23,493	)		(100.2	)

Total noninterest income	$	64,755		$	80,891		$	(16,136	)		(19.9	)%	$	136,937		$	178,929		$	(41,992	)		(23.5	)%

N/M — Not meaningful.

Trust service fees were $19.8 million, up $1.0 million (5.1%) between the comparable six month periods, primarily due to asset management fees on higher account balances as stock market performance improved. The market value of assets under management was $5.7 billion and $5.1 billion at June 30, 2011 and 2010, respectively.

Service charges on deposit accounts were $38.2 million, down $14.3 million (27.3%) from the comparable period last year. The decrease was primarily attributable to lower nonsufficient funds / overdraft fees (down $14.7 million to $18.9 million) due to changes in customer behavior, recent regulatory changes, and changes in deposit account products.

Card-based and other nondeposit fees were $31.3 million, up $2.8 million (9.8%) from the first six months of 2010, primarily due to higher interchange, letter of credit and other commercial loan servicing fees. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 included a provision, the “Durbin Amendment,” which governs the amount banks can charge as interchange fees. The Corporation expects the Durbin Amendment will negatively impact card-based fees by approximately $4 million for the fourth quarter of 2011 and the annualized impact going forward will be approximately $17 million to $19 million. Retail commissions (which include commissions from insurance and brokerage product sales) were $32.9 million for the first half of 2011, up $1.3 million (4.2%) compared to the first half of 2010, primarily attributable to higher insurance fees (up $1.0 million to $23.3 million).

Net mortgage banking was a loss of $1.5 million for the first half of 2011, compared to net mortgage banking income of $10.9 million for the comparable period last year. Net mortgage banking consists of gross mortgage banking income less mortgage servicing rights expense. Gross mortgage banking income (which includes servicing fees and the gain or loss on sales of mortgage loans to the secondary market, related fees and fair value marks on derivatives (collectively “gains on sales and related income”)) was $15.9 million for the first half of

54

2011, a decrease of $3.4 million compared to the first half of 2010. This $3.4 million decrease was primarily attributable to a lower volume of loans sold to the secondary market, resulting in lower gains on sales and related income (down $2.5 million). Secondary mortgage production was $541 million for the first half of 2011, compared to $957 million for the first six months of 2010.

Mortgage servicing rights expense includes both the amortization of the mortgage servicing rights asset and changes to the valuation allowance associated with the mortgage servicing rights asset. Mortgage servicing rights expense is affected by the size of the servicing portfolio, as well as the changes in the estimated fair value of the mortgage servicing rights asset. Mortgage servicing rights expense was $9.0 million higher than the first half of 2010, with an $8.5 million increase to the valuation reserve (comprised of a $5.8 million addition to the valuation reserve for the first half of 2011 compared to a $2.7 million recovery of the valuation reserve for the first half of 2010) and $0.5 million higher base amortization. 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. At June 30, 2011, the mortgage servicing rights asset, net of its valuation allowance, was $53.1 million, representing 72 bp of the $7.4 billion servicing portfolio, compared to a net mortgage servicing rights asset of $65.6 million, representing 84 bp of the $7.8 billion servicing portfolio at June 30, 2010. Mortgage servicing rights are considered a critical accounting policy given that estimating their fair value involves an internal discounted cash flow model and assumptions that involve judgment, particularly of estimated prepayment speeds of the underlying mortgages serviced and the overall level of interest rates. See section “Critical Accounting Policies,” as well as Note 7, “Goodwill and Other Intangible Assets,” and Note 13, “Fair Value Measurements,” of the notes to consolidated financial statements for additional disclosure.

Capital market fees, net (which include fee income from foreign currency and interest rate risk management related products and services provided to our customers) were $1.5 million for the first half of 2011, compared to a loss of less than $0.1 million for the comparable period in 2010. The increase in capital market fees, net was due to an increase in foreign currency related fees of $0.7 million and an increase of $1.9 million in interest rate risk related fees, partially offset by a $1.1 million higher (unfavorable) credit valuation adjustment on interest rate risk related services.

Other income of $9.9 million was $4.1 million higher than the first half of 2010, primarily due to an increase in limited partnership income.

Net asset sale losses were $2.2 million for the first half of 2011, compared to net asset sale losses of $0.2 million for the comparable period last year, with the unfavorable change primarily due to higher losses on sales of other real estate owned. Net investment securities losses for the first half of 2011 were primarily attributable to other-than-temporary write-downs on various equity securities, while net investment securities gains of $23.4 million for the first half of 2010 were attributable to gains of $23.6 million on the sale of mortgage-related securities, partially offset by $0.2 million of credit-related other-than-temporary write-downs on a non-agency mortgage-related security and an equity security. See Note 5, “Investment Securities,” of the notes to consolidated financial statements for additional disclosure.

55

Noninterest Expense

Noninterest expense was $323.1 million for the first half of 2011, up $16.2 million (5.3%) over the comparable period last year. Personnel expense was up $19.4 million (12.2%) between the comparable six month periods, while all remaining expense categories on a combined basis were down $3.2 million (2.2%). For the remainder of 2011, the Corporation expects a moderate increase in noninterest expenses as it continues to execute on its strategic priorities, including investments in our personnel, information systems, and branch network.

TABLE 5
Noninterest Expense
($ in Thousands)


	2^nd Qtr.			2^nd Qtr.								YTD		YTD					Percent
	2011			2010		Dollar Change			Percent Change			2011		2010		Dollar Change			Change

Personnel expense	$	89,203		$	79,342	$	9,861			12.4	%	$	178,133	$	158,697	$	19,436			12.2	%
Occupancy		12,663			11,706		957			8.2			27,938		24,881		3,057			12.3
Equipment		4,969			4,450		519			11.7			9,736		8,835		901			10.2
Data processing		7,974			7,866		108			1.4			15,508		15,165		343			2.3
Business development and advertising		5,652			4,773		879			18.4			10,595		9,218		1,377			14.9
Other intangible asset amortization		1,178			1,254		(76	)		(6.1	)		2,356		2,507		(151	)		(6.0	)
Legal and professional fees		4,783			5,517		(734	)		(13.3	)		9,265		8,312		953			11.5
Losses other than loans		(1,925	)		2,840		(4,765	)		(167.8	)		4,372		4,819		(447	)		(9.3	)
Foreclosure / OREO expense		9,527			8,906		621			7.0			15,588		16,635		(1,047	)		(6.3	)
FDIC expense		7,198			12,027		(4,829	)		(40.2	)		15,442		23,856		(8,414	)		(35.3	)
Stationery and supplies		1,587			1,448		139			9.6			3,074		2,795		279			10.0
Courier		1,213			1,067		146			13.7			2,293		2,142		151			7.0
Postage		1,213			1,564		(351	)		(22.4	)		2,893		3,302		(409	)		(12.4	)
Other		13,651			12,278		1,373			11.2			25,869		25,733		136			0.5

Total noninterest expense	$	158,886		$	155,038	$	3,848			2.5	%	$	323,062	$	306,897	$	16,165			5.3	%

Personnel expense (which includes salary-related expenses and fringe benefit expenses) was $178.1 million for the first half of 2011, up $19.4 million (12.2%) versus the first half of 2010. Average full-time equivalent employees were 4,954 for the first six months of 2011, up 3.8% from 4,772 for the first half of 2010. Salary-related expenses increased $15.5 million (12.3%). This increase was primarily the result of higher compensation and commissions (up $11.7 million or 9.9%, including merit increases between the years and higher compensation related to the vesting of stock options and restricted stock grants), combined with higher performance based incentives (up $2.5 million or 38.7%). Fringe benefit expenses were up $3.9 million (12.2%) versus the first half of 2010, including higher benefit plan and other fringe benefit expenses (up $2.2 million or 11.1%) and higher costs of premium-based benefits (up $1.7 million or 14.1%).

Nonpersonnel noninterest expenses on a combined basis were $144.9 million, down $3.2 million (2.2%) compared to the comparable period in 2010. FDIC expense decreased $8.4 million due to the decline in the assessable deposit base as well as a change in the FDIC expense calculation (from a deposit based calculation to a net asset/risk-based assessment effective April 1, 2011). Foreclosure / OREO expenses of $15.6 million decreased $1.0 million, primarily attributable to a decline in OREO write-downs and collection expenses. Occupancy expense increased $3.1 million (12.3%) and equipment expense increased $0.9 million (10.2%), primarily attributable to strategic investments in our systems and infrastructure. Business development and advertising was up $1.4 million (14.9%) due to targeted marketing campaigns. Legal and professional fees increased $1.0 million primarily due to higher legal and other professional consultant costs related to corporate projects.

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Income Taxes

For the first half of 2011, the Corporation recognized income tax expense of $17.5 million, compared to income tax benefit of $32.8 million for the first half of 2010. The change in income tax was primarily due to the level of pretax income (loss) between the comparable six-month periods. The effective tax rate was 23.40% for the first half of 2011, compared to an effective tax benefit of (52.93%) for the first half at 2010. Income tax expense is also impacted by ongoing federal and state income tax audits and changes in tax law.

Income tax expense recorded in the consolidated statements of income involves the interpretation and application of certain accounting pronouncements and federal and state tax codes, and is, therefore, considered a critical accounting policy. The Corporation undergoes examination by various taxing authorities. Such taxing authorities may require that changes in the amount of tax expense or valuation allowance be recognized when their interpretations differ from those of management, based on their judgments about information available to them at the time of their examinations. See Note 10, “Income Taxes,” of the notes to consolidated financial statements and section “Critical Accounting Policies.”

Balance Sheet

At June 30, 2011, total assets were $22.0 billion, an increase of $263 million since December 31, 2010. The increase in assets was primarily due to a $473 million increase in loans and a $227 million increase in cash and cash equivalents, partially offset by a $359 million decrease in investment securities available for sale. The change in assets was primarily funded by short and long-term funding, as deposits declined since year end 2010.

Loans of $13.1 billion at June 30, 2011, were up $473 million from December 31, 2010, with increases in residential mortgage loans (up $346 million) and commercial and industrial loans (up $153 million), partially offset by a $106 million decrease in installment loans. The Corporation expects a slightly slower pace of loan growth, in the range of 2-3%, for each of the remaining quarters of 2011. Investment securities available for sale were $5.7 billion, down $359 million from year end 2010 (primarily due to paydowns and sales of mortgage-related and municipal securities during the first half of 2011).

At June 30, 2011, total deposits of $14.1 billion were down $1.2 billion from December 31, 2010. Since year end 2010, money market deposits decreased $452 million, brokered CDs fell $126 million and other time declined $296 million, while all other interest-bearing transaction deposits increased $181 million, reflecting the Corporation’s continued strategy for reducing its utilization of network transaction deposits and brokered deposits. Noninterest-bearing demand deposits decreased to $3.2 billion and represented 23% of total deposits, compared to 24% of total deposits at December 31, 2010, reflecting the usual seasonal decline. Short and long-term funding of $4.7 billion was up $1.6 billion since year-end 2010, with customer funding up $1.5 billion and long-term funding increasing $71 million (reflecting the issuance of $300 million of senior notes, net of the repayment of $200 million of long-term FHLB advances). The change in mix within deposits and short and long-term funding represents the Corporation’s strategy to optimize its funding base.

Since June 30, 2010, loans increased $488 million, with commercial loans down $340 million and consumer-related loan balances up $828 million, due to the 2010 loan sales and discounted payoffs to improve credit metrics, as well as the Corporation’s comprehensive risk appetite and loan portfolio shaping analysis performed during 2010. Since June 30, 2010, deposits declined $2.9 billion, primarily attributable to a $1.6 billion decrease in money market deposits (which includes a $1.9 billion decrease in network transaction deposits), a $0.8 billion decrease in interest-bearing demand deposits, and a $0.6 billion decrease in other time deposits. Given the decrease in deposit balances, short and long-term funding was increased by $2.4 billion since June 30, 2010, including a $1.9 billion increase in customer funding, a $0.9 billion increase in short-term funding, and a $0.4 billion decrease in long-term funding.

57

TABLE 6
Period End Loan Composition
($ in Thousands)


	June 30, 2011					March 31, 2011					December 31, 2010					September 30, 2010					June 30, 2010
			% of					% of					% of					% of					% of
	Amount		Total			Amount		Total			Amount		Total			Amount		Total			Amount		Total
Commercial and industrial	$	3,202,301		24	%	$	2,972,651		24	%	$	3,049,752		24	%	$	2,989,238		24	%	$	2,969,662		24	%
Commercial real estate		3,423,686		26			3,382,481		27			3,389,213		27			3,494,342		28			3,576,716		28
Real estate construction		533,804		4			525,236		4			553,069		4			736,387		6			925,697		7
Lease financing		54,001		1			56,458		—			60,254		—			74,690		1			82,375		1

Total commercial		7,213,792		55			6,936,826		55			7,052,288		55			7,294,657		59			7,554,450		60
Home equity ⁽¹⁾		2,594,029		20			2,576,736		20			2,523,057		20			2,457,461		20			2,455,181		19
Installment		589,714		4			605,767		5			695,383		6			721,480		6			749,588		6

Total retail		3,183,743		24			3,182,503		25			3,218,440		26			3,178,941		26			3,204,769		25
Residential mortgage		2,692,054		21			2,535,993		20			2,346,007		19			1,898,795		15			1,842,697		15

Total loans	$	13,089,589		100	%	$	12,655,322		100	%	$	12,616,735		100	%	$	12,372,393		100	%	$	12,601,916		100	%


Farmland	$	30,946		1	%	$	35,032		1	%	$	36,741		1	%	$	39,986		1	%	$	40,544		1	%
Multi-family		566,641		17			538,607		16			485,977		14			528,846		15			518,990		14
Owner occupied		1,030,060		30			1,027,826		30			1,049,798		31			1,086,258		31			1,131,687		32
Non-owner occupied		1,796,039		52			1,781,016		53			1,816,697		54			1,839,252		53			1,885,495		53

Commercial real estate	$	3,423,686		100	%	$	3,382,481		100	%	$	3,389,213		100	%	$	3,494,342		100	%	$	3,576,716		100	%


1-4 family construction	$	92,000		17	%	$	91,349		17	%	$	96,296		17	%	$	137,109		19	%	$	183,953		20	%
All other construction		441,804		83			433,887		83			456,773		83			599,278		81			741,744		80

Real estate construction	$	533,804		100	%	$	525,236		100	%	$	553,069		100	%	$	736,387		100	%	$	925,697		100	%


(1)		Home equity includes home equity lines and residential mortgage junior liens.

TABLE 7
Period End Deposit and Customer Funding Composition
($ in Thousands)


	June 30, 2011					March 31, 2011					December 31, 2010					September 30, 2010					June 30, 2010
			% of					% of					% of					% of					% of
	Amount		Total			Amount		Total			Amount		Total			Amount		Total			Amount		Total
Noninterest-bearing demand	$	3,218,722		23	%	$	3,285,604		23	%	$	3,684,965		24	%	$	3,054,121		18	%	$	2,932,599		17	%
Savings		1,007,337		7			973,122		7			887,236		6			902,077		5			913,146		5
Interest-bearing demand		1,931,519		14			1,755,367		13			1,870,664		12			2,921,700		17			2,745,541		16
Money market		4,982,492		35			4,968,510		35			5,434,867		36			6,312,912		38			6,554,559		39
Brokered CDs		316,670		2			324,045		2			442,640		3			442,209		3			571,626		3
Other time		2,609,310		19			2,716,995		20			2,905,021		19			3,171,841		19			3,252,728		20

Total deposits		14,066,050		100	%		14,023,643		100	%		15,225,393		100	%		16,804,860		100	%		16,970,199		100	%
Customer repo sweeps		930,101					1,048,516					563,884					209,866					184,043
Customer repo term		1,147,938					887,434					—					—					—

Total customer funding		2,078,039					1,935,950					563,884					209,866					184,043

Total deposits and customer funding	$	16,144,089				$	15,959,593				$	15,789,277				$	17,014,726				$	17,154,242

Total deposits, excluding Brokered CDs	$	13,749,380		98	%	$	13,699,598		98	%	$	14,782,753		97	%	$	16,362,651		97	%	$	16,398,573		97	%
Network transaction deposits included above in interest-bearing demand and money market	$	824,003		6	%	$	936,688		7	%	$	1,144,134		8	%	$	1,970,050		12	%	$	2,698,204		16	%
Total deposits, excluding Brokered CDs and network transaction deposits	$	12,925,377		92	%	$	12,762,910		91	%	$	13,638,619		90	%	$	14,392,601		86	%	$	13,700,369		81	%

Allowance for Loan 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 on-going 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.

58

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. In general, the change in the allowance for loan losses is a function of a number of factors, including but not limited to changes in the loan portfolio (see Table 6), net charge offs (see Table 8) and nonperforming assets (see Table 9). The Corporation’s process, designed to assess the appropriateness of the allowance for loan losses, includes an allocation methodology, as well as management’s ongoing review and grading of the loan portfolio into criticized and non-criticized categories. The allocation methodology focuses on 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. Because each of the criteria used is subject to change, the allocation of the allowance for loan losses is made for analytical purposes and is not necessarily indicative of the trend of future loan losses in any particular category. The total allowance for loan losses is available to absorb losses from any segment of the loan portfolio. Management considers the allowance for loan losses a critical accounting policy (see section “Critical Accounting Policies”), as assessing these numerous factors involves significant judgment.

The allocation methodology used by the Corporation includes allocations for specifically identified impaired loans and loss factor allocations, (used for both criticized and non-criticized loan categories) with a component primarily based on historical loss rates and a component primarily based on other qualitative factors. Management allocates the allowance for loan losses by pools of risk within each loan portfolio. While the methodology used at June 30, 2011 and December 31, 2010, was generally comparable, several refinements (described below) were incorporated into the historical loss factor allocation process during the first quarter of 2011. The refinements, which impacted individual portfolio allocation amounts, did not materially impact the overall level of the allowance for loan losses.

The allocation methodology consists of the following components: First, as reflected in Note 6, “Loans, Allowance for Loan Losses, and Credit Quality,” of the notes to consolidated financial statements, a valuation allowance estimate is established for specifically identified commercial and consumer loans determined to be impaired by the Corporation, using discounted cash flows, estimated fair value of underlying collateral, and / or other data available. Second, management allocates 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, credit score, and industry statistics. During the first quarter of 2011, management refined its process for determining historical loss rates by incorporating default and loss severity rates at a more granular level within each loan portfolio. 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, estimation and model risk, and other relevant considerations.

At June 30, 2011, the allowance for loan losses was $426 million compared to $568 million at June 30, 2010, and $477 million at December 31, 2010. At June 30, 2011, the allowance for loan losses to total loans was 3.25% and covered 91% of nonaccrual loans, compared to 4.51% and 58%, respectively, at June 30, 2010, and 3.78% and 83%, respectively, at December 31, 2010. The provision for loan losses for the first half of 2011 was $47 million, compared to $263 million for the first half of 2010, and $390 million for the full year 2010. Net charge offs were $98 million for the six months ended June 30, 2011, $269 million for the comparable period ended June 30, 2010, and $487 million for full year 2010. The ratio of net charge offs to average loans on an annualized basis was 1.54%, 3.97%, and 3.69% for the six months ended June 30, 2011, and 2010, and the full year 2010, respectively. Net charge offs for the first half of 2011 include $10 million of write-downs related to installment loans transferred to held for sale in the first quarter of 2011. Tables 8 and 9 provide additional information regarding

59

activity in the allowance for loan losses, impaired loans, and nonperforming assets. See Note 6, “Loans, Allowance for Loan Losses, and Credit Quality,” of the notes to consolidated financial statements for additional allowance for loan losses disclosures.

During 2010, the Corporation took action to significantly improve its credit metrics; in addition, the economy began to stabilize later in the year. Through a combination of loan sales and discounted payoffs (resolutions), the Corporation reduced nonaccrual loans with a net book value of $597 million during 2010. Nonaccrual loans were $976 million (representing 7.74% of total loans) at June 30, 2010, and declined to $574 million (representing 4.55% of total loans) at December 31, 2010. Sales of nonaccrual loans and discounted payoffs resulted in the elevated levels of net charge offs and provision for loan losses during 2010 (as noted above). Loans past due 30-89 days were $149 million at June 30, 2010, declining to $120 million at December 31, 2010. Potential problem loans totaled $1.3 billion at June 30, 2010, compared to $964 million at December 31, 2010.

Credit quality continued to improve during the first half of 2011. Nonaccrual loans declined to $468 million (representing 3.57% of total loans), down 19% from December 31, 2010, due to organic portfolio improvements, including a lower level of loans moving into the nonaccrual and potential problem loan categories. Loans past due 30-89 days totaled $113 million at June 30, 2011, a decrease of 5% from December 31, 2010, while potential problem loans declined to $699 million, a reduction of 27% from year-end 2010. As a result of the actions taken during the past several quarters and an outlook for the economy to remain stable in the markets we serve, the Corporation expects the provision for loan losses will continue to decline during each of the next two quarters in 2011 and net charge offs will remain elevated.

Management believes the level of allowance for loan losses to be appropriate at June 30, 2011 and December 31, 2010.

Consolidated net income and stockholders’ equity could be affected if management’s estimate of the allowance for loan losses is subsequently materially different, requiring additional or less provision for loan losses to be recorded. Management carefully considers numerous detailed and general factors, its assumptions, and the likelihood of materially different conditions that could alter its assumptions. While management uses currently available information to recognize losses on loans, future adjustments to the allowance for loan losses may be necessary based on newly received appraisals, updated commercial customer financial statements, rapidly deteriorating customer cash flow, and changes in economic conditions that affect our customers. Additionally, larger credit relationships (defined by management as over $25 million) do not inherently create more risk, but can create wider fluctuations in net charge offs and asset quality measures compared to the Corporation’s longer historical trends. As an integral part of their examination process, various federal and state regulatory agencies also review the allowance for loan losses. These agencies may require additions to the allowance for loan losses or may require that certain loan balances be charged off or downgraded into criticized loan categories when their credit evaluations differ from those of management, based on their judgments about information available to them at the time of their examination.

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TABLE 8
Allowance for Loan Losses
($ in Thousands)


	At and for the six months											At and for the year
	ended June 30,											ended December 31,
	2011						2010					2010
Allowance for Loan Losses:
Balance at beginning of period				$	476,813				$	573,533				$	573,533
Provision for loan losses					47,000					263,010					390,010
Charge offs^(1)(2)(3)					(117,521	)				(287,797	)				(528,492	)
Recoveries					19,669					19,166					41,762

Net charge offs^(1)(2)(3)					(97,852	)				(268,631	)				(486,730	)

Balance at end of period				$	425,961				$	567,912				$	476,813


Net loan charge offs^(1)(2)(3):					(A	)				(A	)				(A	)
Commercial and industrial	$	18,340			122		$	69,256		443		$	100,570		330
Commercial real estate (CRE)		17,250			103			58,332		314			106,952		295
Real estate construction		17,967			672			106,321		N/M			198,688		N/M
Lease financing		88			32			1,071		245			11,056		N/M

Total commercial		53,645			154			234,980		574			417,266		536
Home equity		22,573			176			22,982		187			48,399		195
Installment		13,334			410			4,109		91			8,118		95

Total retail		35,907			224			27,091		161			56,517		169
Residential mortgage		8,300			65			6,560		66			12,947		63

Total net charge offs	$	97,852			154		$	268,631		397		$	486,730		369


CRE & Construction Net Charge Off Detail:					(A	)				(A	)				(A	)
Farmland	$	(44	)		(26	)	$	287		126		$	377		89
Multi-family		2,476			94			8,396		313			13,516		256
Owner occupied		6,303			123			5,405		94			20,563		183
Non-owner occupied		8,515			96			44,244		447			72,496		377

Commercial real estate	$	17,250			103		$	58,332		314		$	106,952		295


1-4 family construction	$	6,593			N/M		$	13,081		N/M		$	41,748		N/M
All other construction		11,374			516			93,240		N/M			156,940		N/M

Real estate construction	$	17,967			672		$	106,321		N/M		$	198,688		N/M


(A) — Annualized ratio of net charge offs to average loans by loan type in basis points.

N/M — Not meaningful.
Ratios:
Allowance for loan losses to total loans					3.25	%				4.51	%				3.78	%
Allowance for loan losses to net charge offs (annualized)					2.2x					1.0x					1.0x


(1)		Charge offs for the three months ended March 31, 2011, include $10 million of write-downs related to installment loans transferred to held for sale.

(2)		Charge offs for the year ended December 31, 2010, include $8 million related to write-downs on loans transferred to held for sale and $189 million related to write-downs of commercial loans sold and charge offs of commercial loans resolved through discounted payoff, comprised of $20 million in commercial and industrial, $66 million in commercial real estate, and $111 million in real estate construction.

(3)		Charge offs for the three months ended June 30, 2010 include $66 million of write-downs related to commercial loans sold or transferred to held for sale, comprised of write-downs of $5 million on 1-4 family construction, $31 million on all other construction, $7 million on multi-family commercial real estate, and $23 million on non-owner occupied commercial real estate.

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TABLE 8 (continued)
Allowance for Loan Losses
($ in Thousands)


	June 30,						March 31,					December 31,					September 30,					June 30,
Quarterly Trends:	2011						2011					2010					2010					2010
Allowance for Loan Losses:
Balance at beginning of period				$	454,461				$	476,813				$	522,018				$	567,912				$	575,573
Provision for loan losses					16,000					31,000					63,000					64,000					97,665
Charge offs					(52,365	)				(65,156	)				(118,368	)				(122,327	)				(113,170	)
Recoveries					7,865					11,804					10,163					12,433					7,844

Net charge offs					(44,500	)				(53,352	)				(108,205	)				(109,894	)				(105,326	)

Balance at end of period				$	425,961				$	454,461				$	476,813				$	522,018				$	567,912


Net loan charge offs:					(A	)				(A	)				(A	)				(A	)				(A	)
Commercial and industrial	$	14,026			180		$	4,314		60		$	27,041		364		$	4,274		57		$	5,557		73
Commercial real estate (CRE)		9,377			111			7,873		94			20,103		231			28,517		319			37,004		398
Real estate construction		6,031			454			11,936		N/M			31,879		N/M			60,488		N/M			46,135		N/M
Lease financing		60			44			28		20			9,159		N/M			826		416			297		141

Total commercial		29,494			166			24,151		142			88,182		488			94,105		498			88,993		444
Home equity		8,251			127			14,322		227			14,541		231			10,875		175			11,213		183
Installment		664			42			12,670		759			2,369		131			1,640		74			1,887		83

Total retail		8,915			111			26,992		338			16,910		209			12,515		148			13,100		156
Residential mortgage		6,091			92			2,209		35			3,113		56			3,274		65			3,233		65

Total net charge offs	$	44,500			137		$	53,352		171		$	108,205		341		$	109,894		339		$	105,326		315


CRE & Construction Net Charge Off Detail:					(A	)				(A	)				(A	)				(A	)				(A	)
Farmland	$	(56	)		(67	)	$	12		14		$	88		91		$	2		2		$	98		88
Multi-family		1,359			98			1,117		90			1,001		77			4,119		320			7,279		543
Owner occupied		4,436			174			1,867		72			11,777		438			3,381		121			1,408		49
Non-owner occupied		3,638			82			4,877		110			7,237		157			21,015		443			28,219		567

Commercial real estate	$	9,377			111		$	7,873		94		$	20,103		231		$	28,517		319		$	37,004		398


1-4 family construction	$	2,110			919		$	4,483		N/M		$	12,258		N/M		$	16,409		N/M		$	5,380		N/M
All other construction		3,921			357			7,453		N/M			19,621		N/M			44,079		N/M			40,755		N/M

Real estate construction	$	6,031			454		$	11,936		N/M		$	31,879		N/M		$	60,488		N/M		$	46,135		N/M

(A) — Annualized ratio of net charge offs to average loans by loan type in basis points.

N/M — Not meaningful.

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TABLE 9
Nonperforming Assets
($ in Thousands)


			June 30,			March 31,										September 30,							June 30,
			2011			2011					December 31, 2010					2010							2010
Nonperforming assets:
Nonaccrual loans:
Commercial			$	350,358				$	363,500				$	435,781						$	591,630							$	843,719
Residential mortgage				66,752					70,254					76,319							76,589								84,141
Retail				50,501					54,567					62,256							59,658								47,781

Total nonaccrual loans (NALs)				467,611					488,321					574,356							727,877								975,641
Other real estate owned (OREO)				45,712					49,019					44,330							53,101								51,223

Total nonperforming assets (NPAs)			$	513,323				$	537,340				$	618,686						$	780,978							$	1,026,864


Accruing loans past due 90 days or more:
Commercial				11,513					8,774					2,096							25,396								1,372
Retail				610					606					1,322							1,197								1,835

Total accruing loans past due 90 days or more				12,123					9,380					3,418							26,593								3,207


Restructured loans (accruing):
Commercial				69,657					58,072					48,124							31,083								13,290
Residential mortgage				18,216					17,342					19,378							20,633								23,414
Retail				12,470					12,779					12,433							11,062								4,161

Total restructured loans (accruing)				100,343					88,193					79,935							62,778								40,865


Ratios:
Nonaccrual loans to total loans				3.57	%				3.86	%				4.55	%						5.88	%							7.74	%
NPAs to total loans plus OREO				3.91	%				4.23	%				4.89	%						6.29	%							8.12	%
NPAs to total assets				2.33	%				2.50	%				2.84	%						3.47	%							4.51	%
Allowance for loan losses to NALs				91.09	%				93.07	%				83.02	%						71.72	%							58.21	%
Allowance for loan losses to total loans				3.25	%				3.59	%				3.78	%						4.22	%							4.51	%


Nonperforming assets by type:				(A	)				(A	)				(A	)						(A	)							(A	)
Commercial and industrial	$	71,183		2	%	$	76,780		3	%	$	99,845		3	%	$	156,697				5	%				$	184,173		6	%
Commercial real estate		193,495		6	%		186,547		6	%		223,927		7	%		275,586				8	%					351,883		10	%
Real estate construction		72,782		14	%		84,903		16	%		94,929		17	%		132,425				18	%					279,710		30	%
Lease financing		12,898		24	%		15,270		27	%		17,080		28	%		26,922				36	%					27,953		34	%

Total commercial		350,358		5	%		363,500		5	%		435,781		6	%		591,630				8	%					843,719		11	%
Home equity		46,777		2	%		49,618		2	%		51,712		2	%		50,901				2	%					41,749		2	%
Installment		3,724		1	%		4,949		1	%		10,544		2	%		8,757				1	%					6,032		1	%

Total retail		50,501		2	%		54,567		2	%		62,256		2	%		59,658				2	%					47,781		1	%
Residential mortgage		66,752		2	%		70,254		3	%		76,319		3	%		76,589				4	%					84,141		5	%

Total nonaccrual loans		467,611		4	%		488,321		4	%		574,356		5	%		727,877				6	%					975,641		8	%
Commercial real estate owned		30,629					31,227					31,830					39,002										35,659
Residential real estate owned		11,531					13,423					9,090					10,783										11,607
Bank properties real estate owned		3,552					4,369					3,410					3,316										3,957

Other real estate owned		45,712					49,019					44,330					53,101										51,223

Total nonperforming assets	$	513,323				$	537,340				$	618,686				$	780,978									$	1,026,864


Commercial real estate & Real estate construction NALs Detail:
Farmland	$	2,870		9	%	$	4,296		12	%	$	4,734		13	%			$	4,024					10	%	$	3,048		8	%
Multi-family		11,092		2	%		12,262		2	%		23,864		5	%				35,696					7	%		34,034		7	%
Owner occupied		59,725		6	%		57,168		6	%		59,317		6	%				80,883					7	%		84,962		8	%
Non-owner occupied		119,808		7	%		112,821		6	%		136,012		7	%				154,983					8	%		229,839		12	%

Commercial real estate	$	193,495		6	%	$	186,547		6	%	$	223,927		7	%			$	275,586					8	%	$	351,883		10	%


1-4 family construction	$	24,287		26	%	$	29,878		33	%	$	23,963		25	%			$	28,924					21	%	$	64,533		35	%
All other construction		48,495		11	%		55,025		13	%		70,966		16	%				103,501					17	%		215,177		29	%

Real estate construction	$	72,782		14	%	$	84,903		16	%	$	94,929		17	%			$	132,425					18	%	$	279,710		30	%


(A) Ratio of nonaccrual loans by type to total loans by type.

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TABLE 9 (continued)
Nonperforming Assets
($ in Thousands)


	June 30,		March 31,				September 30,
	2011		2011		December 31, 2010		2010		June 30, 2010
Loans 30-89 days past due by type:
Commercial and industrial	$	7,581	$	36,205	$	33,013	$	14,505	$	40,415
Commercial real estate		61,240		40,537		46,486		56,710		50,721
Real estate construction		13,217		3,410		8,016		12,225		23,368
Lease financing		79		135		132		168		628

Total commercial		82,117		80,287		87,647		83,608		115,132
Home equity		14,818		14,808		13,886		20,044		15,869
Installment		3,851		2,714		9,624		10,536		6,567

Total retail		18,669		17,522		23,510		30,580		22,436
Residential mortgage		12,573		7,940		8,722		10,065		11,110

Total loans past due 30-89 days	$	113,359	$	105,749	$	119,879	$	124,253	$	148,678


Commercial real estate & Real estate construction loans 30-89 days past due Detail:
Farmland	$	55	$	96	$	47	$	237	$	1,686
Multi-family		3,932		3,377		2,758		20,240		16,552
Owner occupied		33,753		21,820		9,295		4,887		7,348
Non-owner occupied		23,500		15,244		34,386		31,346		25,135

Commercial real estate	$	61,240	$	40,537	$	46,486	$	56,710	$	50,721


1-4 family construction	$	4,839	$	681	$	930	$	10,412	$	974
All other construction		8,378		2,729		7,086		1,813		22,394

Real estate construction	$	13,217	$	3,410	$	8,016	$	12,225	$	23,368


Potential problem loans by type:
Commercial and industrial	$	229,407	$	348,949	$	354,284	$	373,955	$	482,686
Commercial real estate		382,056		465,376		492,778		553,126		553,316
Real estate construction		63,186		70,824		91,618		175,817		203,560
Lease financing		1,399		1,705		2,617		2,302		6,784

Total commercial		676,048		886,854		941,297		1,105,200		1,246,346
Home equity		4,515		4,737		3,057		6,495		7,778
Installment		216		230		703		692		725

Total retail		4,731		4,967		3,760		7,187		8,503
Residential mortgage		18,575		19,710		18,672		19,416		17,304

Total potential problem loans	$	699,354	$	911,531	$	963,729	$	1,131,803	$	1,272,153

64

Nonaccrual Loans, Potential Problem Loans, and Other Real Estate Owned

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.

Nonaccrual loans are considered one indicator of potential future loan losses. Loans are generally placed on nonaccrual status when contractually past due 90 days or more as to interest or principal payments. Additionally, whenever management becomes aware of facts or circumstances that may adversely impact the collectability of principal or interest on loans, management may place such loans on nonaccrual status immediately, rather than delaying such action until the loans become 90 days past due. Previously accrued and uncollected interest on such loans is reversed, amortization of related loan fees is suspended, and income is recorded only to the extent that interest payments are subsequently received in cash and a determination has been made that the principal balance of the loan is collectible. If collectability of the principal is in doubt, payments received are applied to loan principal.

Nonaccrual loans were $468 million at June 30, 2011, compared to $976 million at June 30, 2010 and $574 million at year-end 2010. As shown in Table 9, total nonaccrual loans were down $106 million since year-end 2010, with commercial nonaccrual loans down $85 million while consumer-related nonaccrual loans were down $21 million. Since June 30, 2010, total nonaccrual loans decreased $508 million, with commercial nonaccrual loans down $493 million, while consumer-related nonaccrual loans decreased $15 million. The ratio of nonaccrual loans to total loans was 3.57% at June 30, 2011, compared to 7.74% at June 30, 2010 and 4.55% at year-end 2010. The Corporation’s allowance for loan losses to nonaccrual loans was 91% at June 30, 2011, up from 58% at June 30, 2010 and 83% at year-end 2010.

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. At June 30, 2011 accruing loans 90 days or more past due totaled $12 million compared to $3 million at June 30, 2010 and $3 million at December 31, 2010.

Restructured Loans: Restructured loans involve the granting of some concession to the borrower involving the modification of terms of the loan, such as changes in payment schedule or interest rate, which generally would not otherwise be considered. Restructured loans can involve loans remaining on nonaccrual, moving to nonaccrual, or continuing on accrual status, depending on the individual facts and circumstances of the borrower. Generally, restructured loans remain on nonaccrual until the customer has attained a sustained period of repayment performance under the modified loan terms. However, performance prior to the restructuring, or significant events that coincide with the restructuring, are considered in assessing whether the borrower can meet the new terms and whether the loan should be returned to or maintained on accrual status. If the borrower’s ability to meet the revised payment schedule is not reasonably assured, the loan remains on nonaccrual. Beginning in 2009, as a result of the Corporation’s continued efforts to support foreclosure prevention in the markets it serves, the Corporation introduced a modification program (similar to the government modification programs available), in which the Corporation works with its mortgage customers to provide them with an affordable monthly payment through extension of the maturity date, reduction in interest rate, and / or partial principal forbearance. Beginning in 2010, the Corporation began utilizing a multiple note structure as a workout alternative for certain commercial loans. The multiple note structure restructures a troubled loan into two notes, where the first note is reasonably assured of repayment and performance according to the prudently modified terms and the portion of the troubled loan that is not reasonably assured of repayment is charged off. To date, the Corporation’s use of the multiple note structure has not been significant, but use of this structure could increase in future periods. At June 30, 2011, the Corporation had total restructured loans of $171 million (including $71 million classified as nonaccrual and $100 million performing in accordance with the modified terms), compared to $116 million at December 31, 2010 (including $36 million classified as nonaccrual and $80 million performing in accordance with the modified terms).

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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. The loans that have been reported as potential problem loans are predominantly commercial loans covering a diverse range of businesses and real estate property types. At June 30, 2011, potential problem loans totaled $699 million, compared to $1.3 billion at June 30, 2010 and $964 million at December 31, 2010. The $264 million decrease in potential problem loans since December 31, 2010, was primarily due to a $125 million decrease in commercial and industrial, a $111 million decrease in commercial real estate and a $28 million decrease in real estate construction.

Other Real Estate Owned: Other real estate owned decreased to $45.7 million at June 30, 2011, compared to $51.2 million at June 30, 2010 and $44.3 million at December 31, 2010. The $5.5 million decrease in other real estate owned between the June periods was primarily attributable to a $5.0 million decrease in commercial real estate owned, a $0.1 million decrease in residential real estate owned and a $0.4 million decrease to bank premises no longer used for banking and reclassified into other real estate owned. Since year-end 2010, other real estate owned increased $1.4 million, including a $2.4 million increase in residential real estate owned and a $0.2 million increase to bank premises no longer used for banking and reclassified into other real estate owned, partially offset by a $1.2 million decrease in commercial real estate owned. Net losses on sales of other real estate owned were $2.0 million for the six months ended June 30, 2011 and $0.3 million for the comparable period ended June 30, 2010. For the year-ended December 31, 2010 net losses were $4.1 million. Write-downs on other real estate owned were $4.3 million and $5.1 million for the six months ended June 30, 2011 and 2010, respectively. For the year-ended December 31, 2010 write-downs were $10.1 million. Management actively seeks to ensure properties held are monitored to minimize the Corporation’s risk of loss.

Liquidity

The objective of liquidity 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 fall due, including the ability to pay dividends to shareholders, service debt, invest in subsidiaries or acquisitions, and satisfy other operating requirements.

Funds are available from a number of basic banking activity sources, primarily from the core deposit base and from loans and investment securities repayments and maturities. Additionally, liquidity is provided from the sale of investment securities, securities repurchase agreements and lines of credit with counterparty banks, the ability to acquire large, network, and brokered deposits, and the ability to securitize or package loans for sale. The Corporation regularly evaluates the creation of additional funding capacity based on market opportunities and conditions, as well as corporate funding needs. The Corporation’s capital can be a source of funding and liquidity as well (see section “Capital”).

The Corporation’s internal liquidity management framework includes measurement of several key elements, such as deposit funding as a percent of total assets and liquid asset levels. Strong capital ratios, credit quality, and core earnings are essential to maintaining cost-effective access to wholesale funding markets. A downgrade or loss in credit ratings could have an impact on the Corporation’s ability to access wholesale funding at favorable interest rates. At June 30, 2011, the Corporation was in compliance with its internal liquidity objectives.

While core deposits and loan and investment securities repayments are principal sources of liquidity, funding diversification is another key element of liquidity management. Diversity is achieved by strategically varying depositor type, term, funding market, and instrument. The Parent Company and its subsidiary bank are rated by Moody’s, Standard and Poor’s (“S&P”), and Fitch. Credit ratings by these nationally recognized statistical rating agencies are an important component of the Corporation’s liquidity profile. Credit ratings relate to the

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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. Among other factors, the credit ratings are based on financial strength, credit quality and concentrations in the loan portfolio, the level and volatility of earnings, capital adequacy, the quality of management, the liquidity of the balance sheet, the availability of a significant base of core deposits, and the Corporation’s ability to access a broad array of wholesale funding sources. 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. Ratings are subject to revision or withdrawal at any time and each rating should be evaluated independently. The credit ratings of the Parent Company and its subsidiary bank are displayed below.

June 30, 2011

December 31, 2010

Moody’s

S&P

Fitch

Moody’s

S&P

Fitch

Bank short-term

P2

—

F2

P2

—

F2

Bank long-term

A3

BBB

BBB-

A3

BB+

BBB-

Corporation short-term

P2

—

F3

P2

—

F3

Corporation long-term

Baa1

BBB-

Baa1

BB-

BBB-

Subordinated debt long-term

Baa2

BB+

Baa2

B

BB+

Outlook

Stable

Positive

Stable

The Corporation also has multiple funding sources that could be used to increase liquidity and provide additional financial flexibility. In December 2008, the Parent Company filed a “shelf” registration under which the Parent Company may offer any combination of the following securities, either separately or in units: trust preferred securities, debt securities, preferred stock, depositary shares, common stock, and warrants. The Parent Company also has a $200 million commercial paper program, of which, no commercial paper was outstanding at June 30, 2011. In March 2011, the Corporation issued $300 million of senior notes due in 2016, bearing a 5.125% fixed coupon.

In November 2008, under the CPP, the Corporation issued 525,000 shares of Senior Preferred Stock (with a par value of $1.00 per share and a liquidation preference of $1,000 per share) and a 10-year warrant to purchase approximately 4.0 million shares of common stock (“Common Stock Warrants”), for aggregate proceeds of $525 million. Cumulative dividends on the Senior Preferred Stock are payable at 5% per annum for the first five years and at a rate of 9% per annum thereafter on the liquidation preference of $1,000 per share. The Common Stock Warrants have a term of 10 years and are exercisable at any time, in whole or in part, at an exercise price of $19.77 per share (subject to certain anti-dilution adjustments). While any Senior Preferred Stock is outstanding, the Corporation may pay dividends on common stock, provided that all accrued and unpaid dividends for all past dividend periods on the Senior Preferred Stock are fully paid. On April 6, 2011, the Corporation repurchased half (262,500 shares) of the Senior Preferred Stock issued to the U.S. Department of the Treasury under the CPP for $262.5 million.

At June 30, 2011, the Parent Company had $387 million of cash and cash equivalents and liquid investment securities. From these amounts, the Corporation expects to fund the remaining $142 million of its subordinated note offering due on August 15, 2011. The Corporation continues to explore opportunities to utilize its existing cash position as well as other funding sources to fund the future redemption of the remaining $262.5 million of Senior Preferred Stock. The Corporation expects to repurchase the remaining CPP shares during the third or fourth quarter of 2011.

While dividends and service fees from subsidiaries and proceeds from issuance of capital are primary funding sources for the Parent Company, these sources could be limited or costly (such as by regulation or subject to the capital needs of its subsidiaries or by market appetite for bank holding company stock). The subsidiary bank is subject to regulation and may be limited in its ability to pay dividends or transfer funds to the Parent Company. On November 5, 2009, Associated Bank, National Association (the “Bank”) entered into a Memorandum of Understanding (“MOU”) with the Comptroller of the Currency (“OCC”), its primary banking regulator. The MOU requires the Bank to develop, implement, and maintain various processes to improve the Bank’s risk management of its loan portfolio and a three year capital plan providing for maintenance of specified capital levels, notification to the OCC of dividends proposed to be paid to the Corporation and the commitment of the Corporation to act as a primary or contingent source of the Bank’s capital. Management believes that it has

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appropriately addressed all of the conditions of the MOU. On April 6, 2010, the Corporation entered into a Memorandum of Understanding (“Memorandum”) with the Federal Reserve Bank of Chicago (“Reserve Bank”). The Memorandum requires the Corporation to obtain approval prior to the payment of dividends and interest or principal payments on subordinated debt, increases in funding or guarantees of debt, or the repurchase of common stock. See section “Capital” for additional discussion.

A bank note program associated with the Bank was established during 2000. Under this program, short-term and long-term funding may be issued. As of June 30, 2011, no bank notes were outstanding and $225 million was available under the 2000 bank note program. A new bank note program was instituted during 2005, of which $2 billion was available at June 30, 2011. The Bank has also established federal funds lines with counterparty banks and the ability to borrow from the Federal Home Loan Bank ($1.9 billion was outstanding at June 30, 2011). Associated Bank also issues institutional certificates of deposit, network transaction deposits, brokered certificates of deposit, and accepts Eurodollar deposits.

Investment securities are an important tool to the Corporation’s liquidity objective. As of June 30, 2011, all investment securities are classified as available for sale and are reported at fair value on the consolidated balance sheet. Of the $5.7 billion investment securities portfolio at June 30, 2011, a portion of these securities were pledged to secure $1.0 billion of collateralized deposits and $2.1 billion of repurchase agreements and for other purposes as required or permitted by law. The majority of the remaining securities could be pledged or sold to enhance liquidity, if necessary.

For the six months ended June 30, 2011, net cash provided by operating and financing activities was $273 million and $142 million, respectively, while investing activities used net cash of $188 million, for a net increase in cash and cash equivalents of $227 million since year-end 2010. During the first half of 2011, assets increased $263 million, with loans up $473 million and investment securities down $359 million. On the funding side, deposits decreased $1.2 billion (reflecting the Corporation’s strategy for reducing its utilization of network transaction deposits and brokered deposits), while customer funding and long-term funding increased $1.5 billion and $71 million, respectively.

For the six months ended June 30, 2010, net cash provided by operating and investing activities was $249 million and $1.6 billion, respectively, while net cash used by financing activities was $121 million, for a net increase in cash and cash equivalents of $1.7 billion since year-end 2009. During the first half of 2010, assets decreased $114 million, with loans down $1.5 billion and investment securities declining $513 million, while loans held for sale increased $240 million. On the funding side, deposits increased $242 million while short and long-term funding declined $824 million.

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Quantitative and Qualitative Disclosures about Market Risk

Market risk arises from exposure to changes in interest rates, exchange rates, commodity prices, and other relevant market rate or price risk. The Corporation faces market risk in the form of interest rate risk through other than trading activities. Market risk from other than trading activities in the form of interest rate risk is measured and managed through a number of methods. The Corporation uses financial modeling 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 and approved by the Board of Directors are intended to limit exposure of earnings at risk. General interest rate movements are used to develop sensitivity as the Corporation feels it has no primary exposure to a specific point on the yield curve. These limits are based on the Corporation’s exposure to a 100 bp and 200 bp immediate and sustained parallel rate move, either upward or downward.

Interest Rate Risk

In order to measure earnings sensitivity to changing rates, the Corporation uses three different measurement tools: simulation of earnings, economic value of equity, and static gap analysis. These three measurement tools present different views which take into account changes in management strategies and market conditions, among other factors, to varying degrees.

Simulation of earnings: Along with the static gap analysis, determining the sensitivity of short-term future earnings to a hypothetical plus or minus 100 bp and 200 bp parallel rate shock can be accomplished through the use of simulation modeling. The simulation of earnings models the balance sheet as an ongoing entity. Future business assumptions involving administered rate products, prepayments for future rate-sensitive balances, and the reinvestment of maturing assets and liabilities are included. These items are then modeled to project net interest income based on a hypothetical change in interest rates. The resulting net interest income for the next 12-month period is compared to the net interest income amount calculated using flat rates. This difference represents the Corporation’s earnings sensitivity to a plus or minus 100 bp parallel rate shock.

The resulting simulations for June 30, 2011, projected that net interest income would increase by approximately 0.7% if rates rose by a 100 bp shock. Accordingly, this suggests the Corporation was in an asset sensitive position at June 30, 2011. (Asset sensitive in this context means projected net interest income is positively impacted by projected rising rates, while liability sensitive would mean projected net interest income would be negatively impacted by projected rising interest rates.) At December 31, 2010, the 100 bp shock up was projected to increase net interest income by approximately 1.7%. As of June 30, 2011, the simulation of earnings results were within the Corporation’s interest rate risk policy.

Economic value of equity: Economic value of equity is another tool used to measure the impact of interest rates on the value of assets, liabilities, and off-balance sheet financial instruments. This measurement is a longer-term analysis of interest rate risk as it evaluates every cash flow produced by the current balance sheet.

These results are based solely on immediate and sustained parallel changes in market rates and do not reflect the earnings sensitivity that may arise from other factors. These factors may include changes in the shape of the yield curve, the change in spread between key market rates, or accounting recognition of the impairment of certain intangibles. The results are also considered to be conservative estimates due to the fact that no management action to mitigate potential income variances is included within the simulation process. This action could include, but would not be limited to, delaying an increase in deposit rates, extending liabilities, using financial derivative products to hedge interest rate risk, changing the pricing characteristics of loans, or changing the growth rate of certain assets and liabilities. As of June 30, 2011, the projected changes for the economic value of equity were within the Corporation’s interest rate risk policy.

Static gap analysis: The static gap analysis starts with contractual repricing information for assets, liabilities, and off-balance sheet instruments. These items are then combined with repricing estimations for administered rate (interest-bearing demand deposits, savings, and money market accounts) and non-rate related products (demand

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deposit accounts, other assets, and other liabilities) to create a baseline repricing balance sheet. In addition to the contractual information, residential mortgage whole loan products and mortgage-backed securities are adjusted based on industry estimates of prepayment speeds that capture the expected prepayment of principal above the contractual amount based on how far away the contractual coupon is from market coupon rates.

The following table represents the Corporation’s consolidated static gap position as of June 30, 2011.


	Table 10: Interest Rate Sensitivity Analysis
	Interest Sensitivity Period
										Total Within
	0-90 Days			91-180 Days			181-365 Days			1 Year			Over 1 Year		Total
										($ in Thousands)
Earning assets:
Loans held for sale	$	84,323		$	—		$	—		$	84,323		$	—	$	84,323
Investment securities, at fair value		1,055,577			301,736			451,880			1,809,193			4,123,916		5,933,109
Loans		6,591,992			581,775			1,080,735			8,254,502			4,835,087		13,089,589
Other earning assets		780,075			—			—			780,075			—		780,075

Total earning assets	$	8,511,967		$	883,511		$	1,532,615		$	10,928,093		$	8,959,003	$	19,887,096

Interest-bearing liabilities:
Deposits (1) (2)	$	2,604,855		$	1,534,899		$	3,162,634		$	7,302,388		$	6,446,992	$	13,749,380
Other interest-bearing liabilities (2)		2,764,802			819,085			466,642			4,050,529			1,005,985		5,056,514
Interest rate swap		(100,000	)		—			—			(100,000	)		100,000		—

Total interest-bearing liabilities	$	5,269,657		$	2,353,984		$	3,629,276		$	11,252,917		$	7,552,977	$	18,805,894

Interest sensitivity gap	$	3,242,310		$	(1,470,473	)	$	(2,096,661	)	$	(324,824	)	$	1,406,026	$	1,081,202
Cumulative interest sensitivity gap	$	3,242,310		$	1,771,837		$	(324,824	)

Cumulative gap as a percentage of earning assets at June 30, 2011		16.3	%		8.9			(1.6	)%


(1)		The interest rate sensitivity assumptions for demand deposits, savings accounts, money market accounts, and interest-bearing demand deposit accounts are based on current and historical experiences regarding portfolio retention and interest rate repricing behavior. Based on these experiences, a portion of these balances are considered to be long-term and fairly stable and are, therefore, included in the “Over 1 Year” category.

(2)		For analysis purposes, Brokered CDs of $317 million have been included with other interest-bearing liabilities and excluded from deposits.

The static gap analysis in Table 10 provides a representation of the Corporation’s earnings sensitivity to changes in interest rates. It is a static indicator that may not necessarily indicate the sensitivity of net interest income in a changing interest rate environment. As of June 30, 2011, the 12-month cumulative gap results were within the limits under the Corporation’s interest rate risk policy.

At June 30, 2011, the Corporation’s 12-month static gap analysis was slightly negative due to the redeployment of excess liquidity into mortgage-related earning assets and the reduction of higher cost liabilities. For the remainder of 2011, the Corporation’s objective is to remain relatively neutral. However, the interest rate position is at risk to changes in other factors, such as the slope of the yield curve, competitive pricing pressures, changes in balance sheet mix from management action and/or from customer behavior relative to loan or deposit products. See also section “Net Interest Income and Net Interest Margin.”

Interest rate risk of embedded positions (including prepayment and early withdrawal options, lagged interest rate changes, administered interest rate products, and cap and floor options within products) require a more dynamic measuring tool to capture earnings risk. Simulation of earnings and economic value of equity are used to more completely assess interest rate risk.

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

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 June 30, 2011, is included in Note 11, “Derivative and Hedging Activities,” of the notes to consolidated financial statements. A discussion of the Corporation’s lending-related commitments is included in

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Note 12, “Commitments, Off-Balance Sheet Arrangements, and Contingent Liabilities,” of the notes to consolidated financial statements. See also Note 8, “Long-term Funding,” of the notes to consolidated financial statements for additional information on the Corporation’s long-term funding.

Table 11 summarizes significant contractual obligations and other commitments at June 30, 2011, at those amounts contractually due to the recipient, including any premiums or discounts, hedge basis adjustments, or other similar carrying value adjustments.

TABLE 11: Contractual Obligations and Other Commitments


	One Year		One to		Three to		Over
	or Less		Three Years		Five Years		Five Years		Total
	($ in Thousands)
Time deposits	$	2,278,337	$	576,991	$	69,588	$	1,064	$	2,925,980
Short-term funding		3,255,670		—		—		—		3,255,670
Long-term funding		442,049		500,057		300,420		241,648		1,484,174
Operating leases		11,775		21,918		15,857		29,313		78,863
Commitments to extend credit		2,941,486		767,690		384,416		77,239		4,170,831

Total	$	8,929,317	$	1,866,656	$	770,281	$	349,264	$	11,915,518

Capital

Stockholders’ equity at June 30, 2011 was $3.0 billion, down $160 million from December 31, 2010, reflecting a $256 million decrease in preferred equity due to the partial repurchase of the Senior Preferred Stock issued to the U.S. Department of the Treasury under the CPP. At June 30, 2011, stockholders’ equity included $79.3 million of accumulated other comprehensive income compared to $27.6 million of accumulated other comprehensive income at December 31, 2010. The change in accumulated other comprehensive income resulted primarily from the change in the unrealized gain/loss position, net of the tax effect, on investment securities available for sale (from unrealized gains of $55.6 million at December 31, 2010, to unrealized gains of $105.1 million at June 30, 2011). Cash dividends of $0.02 per share were paid in both the first half of 2011 and the first half of 2010. Stockholders’ equity to assets was 13.60% and 14.50% at June 30, 2011 and December 31, 2010, respectively.

On November 5, 2009, Associated Bank, National Association (the “Bank”) entered into a Memorandum of Understanding (“MOU”) with the Comptroller of the Currency (“OCC”), its primary banking regulator. The MOU, which is an informal agreement between the Bank and the OCC, requires the Bank to develop, implement, and maintain various processes to improve the Bank’s risk management of its loan portfolio and a three year capital plan providing for maintenance of specified capital levels discussed below, notification to the OCC of dividends proposed to be paid to the Corporation and the commitment of the Corporation to act as a primary or contingent source of the Bank’s capital. Management believes that it has appropriately addressed all of the conditions of the MOU. The Bank has also agreed with the OCC that until the MOU is no longer in effect, it will maintain minimum capital ratios at specified levels higher than those otherwise required by applicable regulations as follows: Tier 1 capital to total average assets (leverage ratio) — 8% and total capital to risk-weighted assets — 12%. At June 30, 2011, the Bank’s capital ratios were 10.18% and 17.01%, respectively. On April 6, 2010, the Corporation entered into a Memorandum of Understanding (“Memorandum”) with the Federal Reserve Bank of Chicago (“Reserve Bank”). The Memorandum, which was entered into following the 2008-2009 supervisory cycle, is an informal agreement between the Corporation and the Reserve Bank. As required, management has submitted plans to strengthen board and management oversight and risk management and for maintaining sufficient capital incorporating stress scenarios. As also required, the Corporation has submitted quarterly progress reports, and has obtained, and will in the future continue to obtain, approval prior to the payment of dividends and interest or principal payments on subordinated debt, increases in funding or guarantees of debt, or the repurchase of common stock.

On November 21, 2008, the Corporation announced that it sold $525 million of Senior Preferred Stock and related Common Stock Warrants to the UST under the Capital Purchase Program (“CPP”). Under the CPP, prior to the third anniversary of the UST’s purchase of the Senior Preferred Stock (November 21, 2011), unless the Senior Preferred Stock has been redeemed or the UST has transferred all of the Senior Preferred Stock to third parties, the consent of the UST will be required for us to redeem, purchase or acquire any shares of our common stock or other capital stock or other equity securities of any kind, other than (i) redemptions, purchases or other

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acquisitions of the Senior Preferred Stock; (ii) redemptions, purchases or other acquisitions of shares of our common stock in connection with the administration of any employee benefit plan in the ordinary course of business and consistent with past practice; and (iii) certain other redemptions, repurchases or other acquisitions as permitted under the CPP. On April 6, 2011, the Corporation repurchased half (262,500 shares) of the Senior Preferred Stock issued to the U.S. Department of the Treasury under the CPP for $262.5 million.

The Board of Directors has authorized management to repurchase shares of the Corporation’s common stock to be made available for reissuance in connection with the Corporation’s employee incentive plans and/or for other corporate purposes. During 2010 and the first six months of 2011, no shares were repurchased under these authorizations. The Corporation repurchased shares for minimum tax withholding settlements on equity compensation during 2010 and the first six months of 2011. See Part II, Item 2, “Unregistered Sales of Equity Securities and Use of Proceeds,” for additional information on the shares repurchased for equity compensation for the three months ended June 30, 2011. The repurchase of shares will be based on market opportunities, capital levels, growth prospects, and other investment opportunities, and is subject to the restrictions under the CPP and the Memorandum of Understanding with the Federal Reserve Bank of Chicago.

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. The capital ratios of the Corporation and its banking affiliate were in excess of regulatory minimum requirements. The Corporation’s capital ratios are summarized in Table 12.

TABLE 12
Capital Ratios
(In Thousands, except per share data)


	At or For the Quarter Ended
	June 30,			March 31,			December 31,			September 30,			June 30,
	2011			2011			2010			2010			2010

Total stockholders’ equity	$	2,999,148		$	3,194,714		$	3,158,791		$	3,200,849		$	3,186,127
Tier 1 capital		2,168,557			2,395,960			2,376,893			2,367,021			2,358,396
Total capital		2,368,081			2,592,118			2,576,297			2,565,227			2,600,650
Market capitalization		2,409,899			2,573,119			2,622,647			2,282,121			2,120,428

Book value per common share	$	15.81		$	15.46		$	15.28		$	15.53		$	15.46
Tangible book value per common share		10.33			9.97			9.77			10.02			9.93
Cash dividend per common share		0.01			0.01			0.01			0.01			0.01
Stock price at end of period		13.90			14.85			15.15			13.19			12.26
Low closing price for the period		13.06			13.83			12.57			11.96			12.26
High closing price for the period		15.02			15.36			15.49			13.90			16.10

Total stockholders’ equity / assets		13.60	%		14.88	%		14.50	%		14.21	%		14.00	%
Tangible common equity / tangible assets ⁽¹⁾		8.49			8.42			8.12			8.03			7.88
Tangible stockholders’ equity / tangible assets ⁽²⁾		9.71			10.93			10.59			10.41			10.23
Tier 1 common equity / risk-weighted assets ⁽³⁾		12.61			12.65			12.26			12.31			12.00
Tier 1 leverage ratio		10.46			11.65			11.19			10.78			10.80
Tier 1 risk-based capital ratio		16.03			18.08			17.58			17.68			17.25
Total risk-based capital ratio		17.50			19.56			19.05			19.16			19.02

Shares outstanding (period end)		173,374			173,274			173,112			173,019			172,955
Basic shares outstanding (average)		173,323			173,213			173,068			172,989			172,921
Diluted shares outstanding (average)		173,327			173,217			173,072			172,990			172,921


(1)		Tangible common equity to tangible assets = Common stockholders’ equity excluding goodwill and other intangible assets divided by assets excluding goodwill and other intangible assets. This is a non-GAAP financial measure.

(2)		Tangible stockholders’ equity to tangible assets = Total stockholders’ equity excluding goodwill and other intangible assets divided by assets excluding goodwill and other intangible assets. This is a non-GAAP financial measure.

(3)		Tier 1 common equity to risk-weighted assets = Tier 1 capital excluding qualifying perpetual preferred stock and qualifying trust preferred securities divided by risk-weighted assets. This is a non-GAAP financial measure.

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Comparable Second Quarter Results

The Corporation recorded net income of $34.4 million for the three months ended June 30, 2011, compared to a net loss of $2.8 million for the three months ended June 30, 2010. Net income available to common equity was $25.6 million for the three months ended June 30, 2011, or net income of $0.15 for both basic and diluted earnings per common share. Comparatively, net loss available to common equity for the three months ended June 30, 2010, was $10.2 million, or a net loss of $0.06 for both basic and diluted earnings per common share (see Table 1).

Taxable equivalent net interest income for the second quarter of 2011 was $159.5 million, $6.3 million lower than the second quarter of 2010 (see Tables 2 and 3). Changes in balance sheet volume and mix decreased taxable equivalent net interest income by $5.9 million, while changes in the rate environment and product pricing lowered net interest income by $0.4 million. The Federal funds target rate was unchanged for both the second quarter of 2011 and the second quarter of 2010. The net interest margin between the comparable quarters was up 7 bp, to 3.29% in the second quarter of 2011, comprised of a 9 bp higher interest rate spread (to 3.09%, as the yield on earning assets declined 10 bp and the rate on interest-bearing liabilities fell 19 bp) and a 2 bp lower contribution from net free funds (to 0.20%, as lower rates on interest-bearing liabilities decreased the value of noninterest-bearing funds). Average earning assets declined $1.2 billion to $19.4 billion in the second quarter of 2011, with average loans down $0.4 billion (predominantly in commercial loans) and investments down $0.8 billion. On the funding side, average interest-bearing deposits were down $3.2 billion, while average demand deposits increased $235 million. On average, short and long-term funding balances were up $2.1 billion, comprised of a $1.4 billion increase in customer funding, a $1.0 billion increase in other short-term funding, and a $0.3 billion decrease in long-term funding.

Credit metrics continued to improve with nonaccrual loans declining to $468 million (3.57% of total loans) at June 30, 2011, compared to $976 million (7.74% of total loans) at June 30, 2010 (see Table 9). Compared to the second quarter of 2010, loans 30-89 days past due were down 24% to $113 million and potential problem loans were down 45% to $699 million. As a result of these improving credit metrics, the provision for loan losses for the second quarter of 2011 declined to $16.0 million (or $28.5 million less than net charge offs), compared to $97.7 million (or $7.7 million less than net charge offs) in the second quarter of 2010 (see Table 8). Annualized net charge offs represented 1.37% of average loans for the second quarter of 2011 compared to 3.15% for the second quarter of 2010. The allowance for loan losses to loans at June 30, 2011 was 3.25%, compared to 4.51% at June 30, 2010. See discussion under sections, “Provision for Loan Losses,” “Allowance for Loan Losses,” and “Nonaccrual Loans, Potential Problem Loans, and Other Real Estate Owned.”

Noninterest income for the second quarter of 2011 decreased $16.1 million (19.9%) to $64.8 million versus the second quarter of 2010. Core fee-based revenues of $61.3 million were down $5.1 million (7.6%) versus the comparable quarter in 2010. Net mortgage banking decreased $8.8 million from the second quarter of 2010, predominantly due to lower gains on sales and related income as mortgage loan production returned to more normal levels (secondary mortgage production was $251 million for the second quarter of 2011 compared to secondary mortgage production of $502 million for the second quarter of 2010). Net asset sale losses were $0.2 million for the second quarter of 2011, compared to net asset sale gains of $1.5 million for the second quarter of 2010, with the $1.7 million unfavorable change primarily due to higher losses on sales of other real estate owned. All remaining noninterest income categories on a combined basis were $0.5 million lower than the second quarter of 2010 (see Table 4).

On a comparable quarter basis, noninterest expense increased $3.8 million (2.5%) to $158.9 million in the second quarter of 2011. Personnel expense increased $9.9 million (12.4%) from the second quarter of 2010, with salary-related expenses up $7.7 million (average full-time equivalent employees increased 4% between the comparable second quarter periods) and fringe benefit expenses up $2.2 million. FDIC expense decreased $4.8 million (40.2%) due to the decline in the assessable deposit base as well as a change in the FDIC expense calculation (from a deposit based calculation to a net asset/risk-based assessment April 1, 2011). Losses other than loans were down $4.8 million due to lower expenses associated with the reserve for losses on unfunded commitments and the litigation reserve. All remaining noninterest expense categories on a combined basis were up $3.5 million (5.9%) compared to the second quarter of 2010 (see Table 5).

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For the second quarter of 2011, the Corporation recognized income tax expense of $9.6 million, compared to income tax benefit of $9.2 million for the second quarter of 2010. The change in income tax was primarily due to the level of pretax loss between the comparable quarters.

TABLE 13
Selected Quarterly Information
($ in Thousands)


	For the Quarter Ended
	June 30,			March 31,			December 31,			September 30,			June 30,
	2011			2011			2010			2010			2010

Summary of Operations:
Net interest income	$	154,123		$	153,723		$	150,860		$	153,904		$	159,793
Provision for loan losses		16,000			31,000			63,000			64,000			97,665
Noninterest income
Trust service fees		10,012			9,831			9,518			9,462			9,517
Service charges on deposit accounts		19,112			19,064			20,390			23,845			26,446
Card-based and other nondeposit fees		15,747			15,598			15,842			14,906			14,739
Retail commission income		16,475			16,381			14,441			15,276			15,722

Core fee-based revenue		61,346			60,874			60,191			63,489			66,424
Mortgage banking, net		(3,320	)		1,845			13,229			9,007			5,493
Capital market fees, net		(890	)		2,378			5,187			891			(136	)
BOLI income		3,500			3,586			4,509			3,756			4,240
Asset sale gains (losses), net		(209	)		(1,986	)		514			(2,354	)		1,477
Investment securities gains (losses), net		(36	)		(22	)		(1,883	)		3,365			(146	)
Other		4,364			5,507			2,950			3,743			3,539

Total noninterest income		64,755			72,182			84,697			81,897			80,891
Noninterest expense
Personnel expense		89,203			88,930			83,912			80,640			79,342
Occupancy		12,663			15,275			12,899			12,157			11,706
Equipment		4,969			4,767			4,899			4,637			4,450
Data processing		7,974			7,534			7,047			7,502			7,866
Business development and advertising		5,652			4,943			4,870			4,297			4,773
Other intangible asset amortization expense		1,178			1,178			1,206			1,206			1,254
Legal and professional fees		4,783			4,482			5,353			6,774			5,517
Losses other than loans		(1,925	)		6,297			7,470			2,504			2,840
Foreclosure/OREO expense		9,527			6,061			9,860			7,349			8,906
FDIC expense		7,198			8,244			11,095			11,426			12,027
Other		17,664			16,465			18,232			18,088			16,357

Total noninterest expense		158,886			164,176			166,843			156,580			155,038
Income tax expense (benefit)		9,610			7,876			(8,294	)		917			(9,240	)

Net income (loss)		34,382			22,853			14,008			14,304			(2,779	)
Preferred stock dividends and discount accretion		8,812			7,413			7,400			7,389			7,377

Net income (loss) available to common equity	$	25,570		$	15,440		$	6,608		$	6,915		$	(10,156	)


Taxable equivalent net interest income	$	159,455		$	159,163		$	156,581		$	159,818		$	165,759
Net interest margin		3.29	%		3.32	%		3.13	%		3.08	%		3.22	%
Effective tax rate (benefit)		21.84	%		25.63	%		(145.13	%)		6.03	%		(76.88	%)

Average Balances:
Assets	$	21,526,155		$	21,336,858		$	22,034,041		$	22,727,208		$	22,598,695
Earning assets		19,431,292			19,297,866			19,950,784			20,660,498			20,598,637
Interest-bearing liabilities		15,261,514			14,907,465			15,476,002			16,376,904			16,408,718
Loans		13,004,904			12,673,844			12,587,702			12,855,791			13,396,710
Deposits		14,052,689			14,245,614			16,452,473			17,138,105			17,056,193
Short and long-term funding		4,434,500			3,883,122			2,311,016			2,326,469			2,343,119
Stockholders’ equity		2,976,840			3,172,636			3,195,657			3,206,742			3,186,295

Sequential Quarter Results

The Corporation recorded net income of $34.4 million for the three months ended June 30, 2011, compared to net income of $22.9 million for the three months ended March 31, 2011. Net income available to common equity was

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$25.6 million for the three months ended June 30, 2011, or net income of $0.15 for both basic and diluted earnings per common share. Comparatively, net income available to common equity for the three months ended March 31, 2011, was $15.4 million, or net income of $0.09 for both basic and diluted earnings per common share (see Table 1).

Taxable equivalent net interest income for the second quarter of 2011 was $159.5 million, $0.3 million higher than the first quarter of 2011, as the Corporation grew its loan portfolio while aggressively managing its funding costs by reducing noncustomer network and brokered transaction deposits and emphasizing customer repo funding. Changes in the rate environment and product pricing decreased net interest income by $1.3 million, while changes in balance sheet volume and mix increased taxable equivalent net interest income by $0.9 million and one extra day in the second quarter increased net interest income by $0.7 million. The Federal funds target rate was unchanged for both the second quarter of 2011 and the first quarter of 2011. The net interest margin between the sequential quarters was down 3 bp, to 3.29% in the second quarter of 2011, comprised of a 3 bp lower interest rate spread (to 3.09%, as the yield on earning assets declined 1 bp and the rate on interest-bearing liabilities increased 2 bp) while net free funds remained unchanged at 0.20%. Average earning assets increased $0.1 billion to $19.4 billion in the second quarter of 2011, with average investments and other short-term investments down $0.2 billion, while average loans increased $0.3 billion (predominantly in commercial loans). On the funding side, average interest-bearing deposits were down $0.2 billion, while average demand deposits remained relatively flat. On average, short and long-term funding balances were up $0.6 billion, comprised of a $0.2 billion increase in customer funding, a $0.2 billion increase in other short-term funding and a $0.2 billion increase in long-term funding.

The Corporation reported another quarter of improving credit metrics with nonaccrual loans of $468 million (3.57% of total loans) at June 30, 2011, down from $488 million (3.86% of total loans) at March 31, 2011 (see Table 9). Potential problem loans declined to $699 million, down $213 million (23%) from $912 million for the first quarter of 2011. As a result of these improving credit metrics, the provision for loan losses for the second quarter of 2011 decreased to $16 million, compared to $31 million in the first quarter of 2011, with second quarter 2011 provision less than net charge offs by $29 million and first quarter 2011 provision less than net charge offs by $22 million. Annualized net charge offs represented 1.37% of average loans for the second quarter of 2011 compared to 1.71% for the first quarter of 2011. The allowance for loan losses to loans at June 30, 2011 was 3.25%, compared to 3.59% at March 31, 2011 (see Table 8). See discussion under sections, “Provision for Loan Losses,” “Allowance for Loan Losses,” and “Nonaccrual Loans, Potential Problem Loans, and Other Real Estate Owned.”

Noninterest income for the second quarter of 2011 decreased $7.4 million (10.3%) to $64.8 million versus first quarter 2011. Core fee-based revenues of $61.3 million were up $0.5 million (0.8%) versus first quarter 2011, primarily due to increased trust fees and card-based fees. Net mortgage banking was a loss of $3.3 million, down from net mortgage banking income of $1.8 million in the first quarter 2011, predominantly due to a $5.6 million addition to the valuation reserve. Net capital market fees were a loss of $0.9 million, down from net capital market fees income of $2.4 million in the first quarter 2011 due to a $3.6 million unfavorable credit valuation adjustment. Other income of $4.4 million was $1.1 million lower than first quarter 2011, primarily due to a decline in limited partnership income. Net asset sale losses were $0.2 million, a $1.8 million improvement from first quarter 2011, primarily attributable to a decline in losses on other real estate owned.

On a sequential quarter basis, noninterest expense decreased $5.3 million (3.2%) to $158.9 million in the second quarter of 2011. Losses other than loans decreased $8.2 million from the first quarter of 2011, due to lower expenses associated with the reserve for losses on unfunded commitments and the litigation reserve. Occupancy expense declined $2.6 million, primarily attributable to higher costs in the first quarter as a result of snowplowing expenses. Foreclosure/OREO expense of $9.5 million increased $3.5 million from the first quarter 2011 due to an increase in OREO write-downs and foreclosure costs.

For the second quarter of 2011, the Corporation recognized income tax expense of $9.6 million, compared to income tax expense of $7.9 million for the first quarter of 2011. The change in income tax was primarily due to the level of pretax income between the sequential quarters. The effective tax rate was 21.84% and 25.63% for the second quarter at 2011 and the first quarter at 2011, respectively. Income tax expense was also impacted from ongoing federal and state income tax audits and changes in tax law.

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Future Accounting Pronouncements

New accounting policies adopted by the Corporation are discussed in Note 2, “New Accounting Pronouncements Adopted,” of the notes to consolidated financial statements. The expected impact of accounting policies recently issued or proposed but not yet required to be adopted are discussed below. To the extent the adoption of new accounting standards materially affects the Corporation’s financial condition, results of operations, or liquidity, the impacts are discussed in the applicable sections of this financial review and the notes to consolidated financial statements.

In June 2011, the FASB issued guidance to improve the comparability, consistency and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. The amendments require that all nonowner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The amendments do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The amendments are effective for interim and annual periods beginning after December 15, 2011 with retrospective application. The Corporation will adopt the accounting standard during 2012, as required, with no material impact on its results of operations, financial position, and liquidity.

In May 2011, the FASB issued guidance on measuring fair value to create common fair value measurement and disclosure requirements in U.S. GAAP and IFRS. The amendments change the wording used to describe many of the requirements for measuring fair value and for disclosing information about fair value measurements. The amendments also clarify the Board’s intent about the application of existing fair value measurement and disclosure requirements. The amendments are effective for interim and annual periods beginning after December 15, 2011. The Corporation will adopt the accounting standard during 2012, as required, and is currently evaluating the impact on its results of operations, financial position, and liquidity.

In April 2011, the FASB issued clarifying guidance about which loan modifications constitute troubled debt restructurings. In evaluating whether a restructuring constitutes a troubled debt restructuring, the guidance maintains a creditor must separately conclude that the restructuring constitutes a concession and that the debtor is experiencing financial difficulties. The accounting standard provides further clarification whether a creditor has granted a concession and whether a debtor is experiencing financial difficulties. The measurement guidance is effective for interim and annual periods beginning on or after June 15, 2011, while the disclosure guidance is effective for interim and annual periods beginning on or after June 15, 2011 with retrospective application to restructurings occurring on or after the beginning of the fiscal year. The Corporation will adopt the accounting standard during the third quarter of 2011, as required, and is currently evaluating the impact on its results of operations, financial position, and liquidity. While the exact impact is difficult to predict, the Corporation anticipates that the adoption of this accounting guidance will likely result in an increase in loans accounted for as troubled debt restructurings.

In April 2011, the FASB issued guidance which clarifies the definition of effective control for determining whether a repurchase agreement is accounted for as a sale or secured borrowing. The amendments in the guidance remove from the assessment of effective control both the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed upon terms and the collateral maintenance implementation guidance related to that criterion. Other criteria applicable to the assessment of effective control are not changed by the amendments in the update. The guidance is effective for interim and annual periods beginning on or after December 15, 2011. The Corporation will adopt the accounting standard during 2012, as required, and is currently evaluating the impact on its results of operations, financial position, and liquidity.

Recent Developments

On July 26, 2011, the Board of Directors declared a $0.01 per common share dividend payable on August 17, 2011, to shareholders of record as of August 8, 2011. This cash dividend has not been reflected in the accompanying consolidated financial statements.

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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 June 30, 2011, 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 June 30, 2011. 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

A lawsuit was filed against the Corporation in the United States District Court for the Western District of Wisconsin, on April 6, 2010. The lawsuit is styled as a class action lawsuit with the certification of the class pending. The suit alleges that the Corporation unfairly assesses and collects overdraft fees and seeks restitution of the overdraft fees, compensatory, consequential and punitive damages, and costs. On April 23, 2010, a Multi District Judicial Panel issued a conditional transfer order to consolidate this case into the overdraft fees Multi District Litigation pending in the United States District Court for the Southern District of Florida, Miami Division. The Corporation denies all claims and intends to vigorously defend itself. In addition to the above, in the ordinary course of business, the Corporation may be named as defendant in or be a party to various pending and threatened legal proceedings. Legal proceedings and contingencies have a high degree of uncertainty. When a loss from a contingency becomes probable and estimable, an accrual is established. The accrual reflects management’s estimate of the probable cost of resolution of the matter and is revised as facts and circumstances change. We have established accruals for certain matters. Given the indeterminate amounts sought in certain of these matters and the inherent unpredictability of such matters, it is possible that the results of such proceedings will have a material adverse effect on the Corporation’s business, financial position or results of operations in future periods.

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

Following are the Corporation’s monthly common stock purchases during the second quarter of 2011. For a discussion of the common stock repurchase authorizations and repurchases during the period, see section “Capital” included under Part I Item 2 of this document.


					Total Number of		Maximum Number of
	Total Number of				Shares Purchased as		Shares that May Yet
	Shares		Average Price		Part of Publicly		Be Purchased Under
Period	Purchased		Paid per Share		Announced Plans		the Plan

April 1- April 30, 2011		339		14.55		—		—
May 1 - May 31, 2011		289		14.73		—		—
June 1 - June 30, 2011		—		—		—		—

Total		628		14.63		—		—

During the second quarter of 2011, the Corporation repurchased shares for minimum tax withholding settlements on equity compensation. The effect to the Corporation of this transaction was an increase in treasury stock and a decrease in cash of approximately $9,000 in the second quarter of 2011.

ITEM 6. Exhibits


(a)		Exhibits:

		Exhibit (11), Statement regarding computation of per share earnings. See Note 3 of the notes to consolidated financial statements in Part I Item 1.

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

		Exhibit (31.2), Certification Under Section 302 of Sarbanes-Oxley by Joseph B. Selner, Chief Financial Officer, is attached hereto.

		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, is attached hereto.

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

		* As provided in Rule 406T of Regulation S-T, this information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.

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SIGNATURES

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


	ASSOCIATED BANC-CORP (Registrant)

Date: August 8, 2011	/s/ Philip B. Flynn
	Philip B. Flynn
	President and Chief Executive Officer


Date: August 8, 2011	/s/ Joseph B. Selner
	Joseph B. Selner
	Chief Financial Officer

Associated Banc-Corp - 10-Q quarterly report FY2011 Q2

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