Associated Banc-Corp - 10-Q quarterly report FY

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 March 31, 2010

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 0-5519 and 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)		(IRS 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 o 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	Smaller reporting company o
		(Do not check if smaller reporting company)

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 April 30, 2010, was 172,918,246.

ASSOCIATED BANC-CORP
TABLE OF CONTENTS


	Page No.
PART I. Financial Information

Item 1. Financial Statements (Unaudited):

Consolidated Balance Sheets - March 31, 2010 and December 31, 2009		3

Consolidated Statements of Income (Loss)- Three Months Ended March 31, 2010 and 2009		4

Consolidated Statements of Changes in Stockholders’ Equity - Three Months Ended March 31, 2010 and 2009		5

Consolidated Statements of Cash Flows - Three Months Ended March 31, 2010 and 2009		6

Notes to Consolidated Financial Statements		7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		35

Item 3. Quantitative and Qualitative Disclosures About Market Risk		64

Item 4. Controls and Procedures		64

PART II. Other Information

Item 1. Legal Proceedings		65

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		65

Item 6. Exhibits		65

Signatures		66
EX-31.1
EX-31.2
EX-32

2

PART I — FINANCIAL INFORMATION


ITEM 1.		Financial Statements:

ASSOCIATED BANC-CORP

Consolidated Balance Sheets


	March 31,			December 31,
	2010			2009
	(Unaudited)			(Audited)
	(In Thousands, except share data)
ASSETS
Cash and due from banks	$	284,882		$	770,816
Interest-bearing deposits in other financial institutions		1,998,528			26,091
Federal funds sold and securities purchased under agreements to resell		19,220			23,785
Investment securities available for sale, at fair value		5,267,372			5,835,533
Federal Home Loan Bank and Federal Reserve Bank stocks, at cost		184,811			181,316
Loans held for sale		274,003			81,238
Loans		13,299,321			14,128,625
Allowance for loan losses		(575,573	)		(573,533	)

Loans, net		12,723,748			13,555,092
Premises and equipment, net		183,401			186,564
Goodwill		929,168			929,168
Other intangible assets, net		91,991			92,807
Other assets		1,150,512			1,191,732

Total assets	$	23,107,636		$	22,874,142


LIABILITIES AND STOCKHOLDERS’ EQUITY
Noninterest-bearing demand deposits	$	3,023,247		$	3,274,973
Interest-bearing deposits, excluding brokered certificates of deposit		13,731,421			13,311,672
Brokered certificates of deposit		742,119			141,968

Total deposits		17,496,787			16,728,613
Short-term borrowings		575,564			1,226,853
Long-term funding		1,643,979			1,953,998
Accrued expenses and other liabilities		210,797			226,070

Total liabilities		19,927,127			20,135,534

Stockholders’ equity
Preferred equity		511,910			511,107
Common stock		1,737			1,284
Surplus		1,564,536			1,082,335
Retained earnings		1,044,501			1,081,156
Accumulated other comprehensive income		59,744			63,432
Treasury stock, at cost		(1,919	)		(706	)

Total stockholders’ equity		3,180,509			2,738,608

Total liabilities and stockholders’ equity	$	23,107,636		$	22,874,142

Preferred shares issued		525,000			525,000
Preferred shares authorized (par value $1.00 per share)		750,000			750,000
Common shares issued		173,745,850			128,428,814
Common shares authorized (par value $0.01 per share)		250,000,000			250,000,000
Treasury shares of common stock		124,327			25,251

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 March 31,
	2010			2009
	(In Thousands, except per share data)
INTEREST INCOME
Interest and fees on loans	$	159,291		$	202,025
Interest and dividends on investment securities and deposits in other financial institutions:
Taxable		47,918			50,903
Tax exempt		8,709			9,494
Interest on federal funds sold and securities purchased under agreements to resell		22			63

Total interest income		215,940			262,485
INTEREST EXPENSE
Interest on deposits		28,745			46,599
Interest on short-term borrowings		2,026			5,154
Interest on long-term funding		15,947			21,454

Total interest expense		46,718			73,207

NET INTEREST INCOME		169,222			189,278
Provision for loan losses		165,345			105,424

Net interest income after provision for loan losses		3,877			83,854
NONINTEREST INCOME
Trust service fees		9,356			8,477
Service charges on deposit accounts		26,059			27,205
Card-based and other nondeposit fees		10,820			10,174
Retail commission income		15,817			15,512
Mortgage banking, net		5,407			4,267
Capital market fees, net		130			2,626
Bank owned life insurance income		3,256			5,772
Asset sale losses, net		(1,641	)		(1,107	)
Investment securities gains (losses), net:
Realized gains, net		23,581			10,946
Other-than-temporary impairments		—			(350	)
Less: Non-credit portion recognized in other comprehensive income (before taxes)		—			—

Total investment securities gains, net		23,581			10,596
Other		5,253			5,455

Total noninterest income		98,038			88,977
NONINTEREST EXPENSE
Personnel expense		79,355			77,098
Occupancy		13,175			12,881
Equipment		4,385			4,589
Data processing		7,299			7,597
Business development and advertising		4,445			4,737
Other intangible asset amortization expense		1,253			1,386
Legal and professional fees		2,795			4,241
Foreclosure/OREO expense		7,729			5,013
FDIC expense		11,829			5,775
Other		19,594			17,947

Total noninterest expense		151,859			141,264

Income (loss) before income taxes		(49,944	)		31,567
Income tax benefit		(23,555	)		(11,158	)

Net income (loss)	$	(26,389	)	$	42,725
Preferred stock dividends and discount accretion		7,365			7,321

Net income (loss) available to common equity	$	(33,754	)	$	35,404

Earnings (loss) per common share:
Basic	$	(0.20	)	$	0.28
Diluted	$	(0.20	)	$	0.28
Average common shares outstanding:
Basic		165,842			127,839
Diluted		165,842			127,845

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 (Loss)			Stock			Total
							($ in Thousands, except per share data)
Balance, December 31, 2008	$	508,008	$	1,281	$	1,073,218	$	1,293,941		$	55		$	—		$	2,876,503
Comprehensive income:
Net income		—		—		—		42,725			—			—			42,725
Other comprehensive income		—		—		—		—			23,876			—			23,876

Comprehensive income																	66,601

Common stock issued:
Stock-based compensation plans, net		—		3		71		(569	)		—			511			16
Purchase of treasury stock		—		—		—		—			—			(608	)		(608	)
Cash dividends:
Common stock, $0.32 per share		—		—		—		(41,089	)		—			—			(41,089	)
Preferred stock		—		—		—		(6,563	)		—			—			(6,563	)
Accretion of preferred stock discount		758		—		—		(758	)		—			—			—
Stock-based compensation, net		—		—		2,308		—			—			—			2,308
Tax benefit of stock options		—		—		1		—			—			—			1

Balance, March 31, 2009	$	508,766	$	1,284	$	1,075,598	$	1,287,687		$	23,931		$	(97	)	$	2,897,169


Balance, December 31, 2009	$	511,107	$	1,284	$	1,082,335	$	1,081,156		$	63,432		$	(706	)	$	2,738,608
Comprehensive loss:
Net loss		—		—		—		(26,389	)		—			—			(26,389	)
Other comprehensive loss		—		—		—		—			(3,688	)		—			(3,688	)

Comprehensive loss																	(30,077	)

Common stock issued:
Issuance of common stock		—		448		477,910		—			—			—			478,358
Stock-based compensation plans, net		—		5		2,015		(1,165	)		—			(412	)		443
Purchase of treasury stock		—		—		—		—			—			(801	)		(801	)
Cash dividends:
Common stock, $0.01 per share		—		—		—		(1,736	)		—			—			(1,736	)
Preferred stock		—		—		—		(6,562	)		—			—			(6,562	)
Accretion of preferred stock discount		803		—		—		(803	)		—			—			—
Stock-based compensation, net		—		—		2,276		—			—			—			2,276

Balance, March 31, 2010	$	511,910	$	1,737	$	1,564,536	$	1,044,501		$	59,744		$	(1,919	)	$	3,180,509

See accompanying notes to consolidated financial statements.

5


ITEM 1.		Financial Statements Continued:

ASSOCIATED BANC-CORP

Consolidated Statements of Cash Flows
(Unaudited)


	For the Three Months Ended
	March 31,
	2010			2009
	($ in Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	(26,389	)	$	42,725
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		165,345			105,424
Depreciation and amortization		7,549			7,725
Addition to (recovery of) valuation allowance on mortgage servicing rights, net		(902	)		12,300
Amortization of mortgage servicing rights		5,523			3,990
Amortization of other intangible assets		1,253			1,386
Amortization and accretion on earning assets, funding, and other, net		15,837			10,141
Tax benefit from exercise of stock options		—			1
Gain on sales of investment securities, net and impairment write-downs		(23,581	)		(10,596	)
Loss on sales of assets, net		1,641			1,107
Gain on mortgage banking activities, net		(6,312	)		(15,008	)
Mortgage loans originated and acquired for sale		(454,746	)		(1,079,732	)
Proceeds from sales of mortgage loans held for sale		419,517			813,580
(Increase) decrease in interest receivable		3,523			(3,294	)
Decrease in interest payable		(4,529	)		(6,324	)
Net change in other assets and other liabilities		16,464			288,204

Net cash provided by operating activities		120,193			171,629

CASH FLOWS FROM INVESTING ACTIVITIES
Net increase (decrease) in loans		484,753			(294,767	)
Purchases of:
Investment securities		(537,431	)		(1,480,589	)
Premises, equipment, and software, net of disposals		(3,071	)		(3,439	)
Other assets		(1,491	)		(3,339	)
Proceeds from:
Sales of investment securities		561,857			266,000
Calls and maturities of investment securities		556,318			778,546
Sales of other assets		24,235			3,668

Net cash provided by (used in) investing activities		1,085,170			(733,920	)

CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits		768,174			718,393
Net decrease in short-term borrowings		(651,289	)		(338,806	)
Repayment of long-term funding		(410,012	)		(200,030	)
Proceeds from issuance of long-term funding		100,000			300,000
Proceeds from issuance of common stock		478,358			—
Cash dividends on common stock		(1,736	)		(41,089	)
Cash dividends on preferred stock		(6,562	)		(6,563	)
Proceeds from exercise of stock options, net		443			16
Purchase of treasury stock		(801	)		(608	)

Net cash provided by financing activities		276,575			431,313

Net increase (decrease) in cash and cash equivalents		1,481,938			(130,978	)
Cash and cash equivalents at beginning of period		820,692			570,728

Cash and cash equivalents at end of period	$	2,302,630		$	439,750

Supplemental disclosures of cash flow information:
Cash paid for interest	$	53,638		$	79,531
Cash (received) paid for income taxes		(50,000	)		8,913
Loans and bank premises transferred to other real estate owned		7,623			11,812
Transfers of loans to held for sale		156,282			—
Capitalized mortgage servicing rights		5,058			10,476

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 2009 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 material intercompany transactions and balances are eliminated. 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: Reclassifications

Certain amounts in the consolidated financial statements of prior periods have been reclassified to conform with the current period’s presentation.

NOTE 3: New Accounting Pronouncements Adopted

In May 2009, the Financial Accounting Standards Board (“FASB”) issued an accounting standard intended to establish general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. In particular, this accounting standard requires companies to disclose the date through which they have evaluated subsequent events and the basis for that date, as to whether it represents the date the financial statements were issued or were available to be issued. It also provides guidance regarding circumstances under which companies should and should not recognize events or transactions occurring after the balance sheet date in their financial statements. This accounting standard also includes disclosure requirements for certain events and transactions that occurred after the balance sheet date, which were not recognized in the financial statements. This accounting standard is effective for interim and annual periods ending after June 15, 2009. The Corporation adopted this accounting standard in the second quarter of 2009. In February 2010, the FASB amended this standard by requiring companies who file financial statements with the Securities and Exchange Commission (“SEC”) to evaluate subsequent events through the date the financial statements are issued, and exempts SEC filers from disclosing the date through which subsequent events have been evaluated. The amendment to this standard also provides further definitions of terms, and became effective immediately upon its issuance in February 2010. The adoption of this accounting standard, which was subsequently codified into ASC Topic 855, “Subsequent Events,” had no material impact on the Corporation’s results of operations, financial position, and liquidity.

In June 2009, the FASB issued an accounting standard which requires a qualitative rather than a quantitative analysis to determine the primary beneficiary of a variable interest entity (“VIE”) for consolidation purposes. The

7

primary beneficiary of a VIE is the enterprise that has: (1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance, and (2) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits of the VIE that could potentially be significant to the VIE. This accounting standard was effective as of the beginning of the first annual reporting period beginning after November 15, 2009. The Corporation adopted this accounting standard at the beginning of 2010, with no material impact on its results of operations, financial position, and liquidity.

In June 2009, the FASB issued an accounting standard which amends current generally accepted accounting principles related to the accounting for transfers and servicing of financial assets and extinguishments of liabilities, including the removal of the concept of a qualifying special-purpose entity. This new accounting standard also clarifies that a transferor must evaluate whether it has maintained effective control of a financial asset by considering its continuing direct or indirect involvement with the transferred financial asset. This accounting standard was effective as of the beginning of the first annual reporting period beginning after November 15, 2009. The Corporation adopted this accounting standard at the beginning of 2010, with no material impact on its results of operations, financial position, and liquidity.

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 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 will be effective at the beginning of 2010, except for the detailed Level 3 disclosures, which will be effective at the beginning of 2011. The Corporation adopted the accounting standard, except for the detailed Level 3 disclosures, at the beginning of 2010, with no material impact on its results of operations, financial position, and liquidity.

8

NOTE 4: 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) and unsettled share repurchases. Presented below are the calculations for basic and diluted earnings per common share.


	For the three months ended March 31,
	2010			2009
	(In Thousands, except per share data)
Net income (loss)	$	(26,389	)	$	42,725
Preferred stock dividends and discount accretion		(7,365	)		(7,321	)

Net income (loss) available to common equity		(33,754	)		35,404

Common shareholder dividends		(1,729	)		(40,920	)
Unvested share-based payment awards		(7	)		(169	)

Undistributed earnings	$	(35,490	)	$	(5,685	)

Basic
Distributed earnings to common shareholders	$	1,729		$	40,920
Undistributed earnings to common shareholders		(35,490	)		(5,685	)

Total common shareholders earnings, basic	$	(33,761	)	$	35,235

Diluted
Distributed earnings to common shareholders	$	1,729		$	40,920
Undistributed earnings to common shareholders		(35,490	)		(5,685	)

Total common shareholders earnings, diluted	$	(33,761	)	$	35,235


Weighted average common shares outstanding		165,842			127,839
Effect of dilutive stock awards and unsettled share repurchases		—			6

Diluted weighted average common shares outstanding		165,842			127,845

Basic earnings (loss) per common share	$	(0.20	)	$	0.28

Diluted earnings (loss) per common share	$	(0.20	)	$	0.28

As a result of the Corporation’s reported net loss for the three months ended March 31, 2010, all of the stock options outstanding were excluded from the computation of diluted earnings (loss) per common share. Options to purchase approximately 7 million shares were outstanding at March 31, 2009, but excluded from the calculation of diluted earnings per common share as the effect would have been anti-dilutive.

9

NOTE 5: Stock-Based Compensation

The fair value of stock options granted is estimated on the date of grant using a Black-Scholes option pricing model, while the fair value of restricted stock 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 quarter of 2010 and full year 2009:


	2010			2009

Dividend yield		3.00	%		4.95	%
Risk-free interest rate		2.75	%		1.87	%
Expected volatility		45.24	%		36.00	%
Weighted average expected life	6 yrs			6 yrs
Weighted average per share fair value of options	$	4.57		$	3.60

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, 2009 and for the three months ended March 31, 2010, is presented below.


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

Outstanding at December 31, 2008		6,581,702		$	27.45
Granted		975,548			17.05
Exercised		(945	)		16.70
Forfeited or expired		(847,687	)		25.73

Outstanding at December 31, 2009		6,708,618		$	26.16		5.61		—

Options exercisable at December 31, 2009		4,811,626		$	27.73		4.50		—

Outstanding at December 31, 2009		6,708,618		$	26.16
Granted		1,230,974			13.16
Exercised		—			—
Forfeited or expired		(340,089	)		18.85

Outstanding at March 31, 2010		7,599,503		$	24.38		6.21		—

Options exercisable at March 31, 2010		5,433,813		$	27.68		5.01		—

10

The following table summarizes information about the Corporation’s nonvested stock option activity for the year ended December 31, 2009, and for the three months ended March 31, 2010.


				Weighted Average
Stock Options	Shares			Grant Date Fair Value

Nonvested at December 31, 2008		1,811,165		$	3.85
Granted		975,548			3.60
Vested		(650,629	)		4.07
Forfeited		(239,092	)		4.26

Nonvested at December 31, 2009		1,896,992		$	3.60

Granted		1,230,974			4.57
Vested		(836,995	)		3.98
Forfeited		(125,281	)		3.52

Nonvested at March 31, 2010		2,165,690		$	4.01

For the quarter ended March 31, 2010, no stock options were exercised, while for the year ended December 31, 2009, the intrinsic value of stock options exercised was immaterial (less than $0.1 million). (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 three months of 2010 and $2.6 million for the year ended December 31, 2009. For the quarters ended March 31, 2010 and 2009, the Corporation recognized compensation expense of $0.8 million and $1.0 million, respectively, for the vesting of stock options. For the full year 2009, the Corporation recognized compensation expense of $3.6 million for the vesting of stock options. At March 31, 2010, the Corporation had $7.9 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 2012.

The following table summarizes information about the Corporation’s restricted stock share activity (excluding salary shares) for the year ended December 31, 2009, and for the three months ended March 31, 2010.


				Weighted Average
Restricted Stock	Shares			Grant Date Fair Value

Outstanding at December 31, 2008		354,327		$	26.75
Granted		371,643			16.48
Vested		(146,320	)		27.96
Forfeited		(52,519	)		21.80

Outstanding at December 31, 2009		527,131		$	19.67

Granted		515,203			12.83
Vested		(189,804	)		22.29
Forfeited		(111,426	)		17.28

Outstanding at March 31, 2010		741,104		$	14.61

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 2010 to the senior executive officers and the next 20 most highly compensated employees will vest in two years after the grant date if all funds received under the Capital Purchase Program (“CPP”) have been paid in full. If the CPP funds have not been repaid in full after two years, the shares will vest in 25% increments of the funds being repaid (i.e., 0% vest if less than 25% is repaid, 25% vest if 25-49% is repaid, 50% vest if 50-74% is repaid, 75% vest if 75-99% is repaid, and 100% vest if the full amount is repaid). Expense for restricted stock awards of approximately $1.5 million and $1.3 million was recorded for the three months ended March 31, 2010 and 2009, respectively, while expense for restricted stock awards of approximately $4.3 million was recognized for the full year 2009. The Corporation had $9.7 million of unrecognized compensation costs related to restricted stock shares at March 31, 2010, that is expected to be recognized over the remaining requisite service periods that extend predominantly through fourth quarter 2012.

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 $0.4 million on the granting of 33,751

11

salary shares (or an average cost per share of $13.10) for the three months ended March 31, 2010, and $0.1 million on the granting of 5,841 salary shares (or an average cost per share of $11.06) for the three months ended December 31, 2009.

The Corporation issues shares from treasury, when available, or new shares upon the exercise of stock options, vesting of restricted stock shares, 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.

NOTE 6: Investment Securities

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


			Gross unrealized		Gross unrealized
	Amortized cost		gains		losses			Fair value
			($ in Thousands)
March 31, 2010:
U.S. Treasury securities	$	997	$	7	$	—		$	1,004
Federal agency securities		8,058		232		(1	)		8,289
Obligations of state and political subdivisions (municipal securities)		877,774		24,760		(528	)		902,006
Residential mortgage-related securities		4,214,358		133,142		(11,626	)		4,335,874
Commercial mortgage-related securities		1,904		—		(10	)		1,894
Other securities (debt and equity)		18,196		1,549		(1,440	)		18,305

Total investment securities available for sale	$	5,121,287	$	159,690	$	(13,605	)	$	5,267,372


			Gross unrealized		Gross unrealized
	Amortized cost		gains		losses			Fair value
			($ in Thousands)
December 31, 2009:
U.S. Treasury securities	$	3,896	$	7	$	(28	)	$	3,875
Federal agency securities		41,980		1,428		(1	)		43,407
Obligations of state and political subdivisions (municipal securities)		865,111		20,960		(906	)		885,165
Residential mortgage-related securities		4,751,033		144,776		(13,290	)		4,882,519
Other securities (debt and equity)		20,954		1,274		(1,661	)		20,567

Total investment securities available for sale	$	5,682,974	$	168,445	$	(15,886	)	$	5,835,533

The amortized cost and fair values of investment securities available for sale at March 31, 2010, by contractual 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	$	111,104	$	112,723
Due after one year through five years		150,426		156,247
Due after five years through ten years		438,746		452,681
Due after ten years		196,707		198,507

Total debt securities		896,983		920,158
Residential mortgage-related securities		4,214,358		4,335,874
Commercial mortgage-related securities		1,904		1,894
Equity securities		8,042		9,446

Total investment securities available for sale	$	5,121,287	$	5,267,372

Net investment securities gains of $23.6 million for the three months ended March 31, 2010 were attributable to gains on the sale of $538 million of mortgage-related securities. Net investment securities gains of $8.8 million

12

for 2009 were attributable to gains of $14.6 million on the sale of mortgage-related securities, partially offset by a $2.9 million loss on the sale of mortgage-related securities and $2.9 million of credit-related other-than-temporary write-downs on the Corporation’s holding of various investment securities (including a $2.0 million write-down on a trust preferred debt security, a $0.4 million write-down on a non-agency mortgage-related security, and a $0.5 million write-down on various equity securities).

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 March 31, 2010.


	Less than 12 months					12 months or more					Total
	Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value
						($ in Thousands)
March 31, 2010:
Federal agency securities	$	—		$	—	$	(1	)	$	44	$	(1	)	$	44
Obligations of state and political subdivisions (municipal securities)		(188	)		15,386		(340	)		6,296		(528	)		21,682
Residential mortgage-related securities		(9,666	)		112,840		(1,960	)		32,741		(11,626	)		145,581
Commercial mortgage-related securities		(10	)		1,894		—			—		(10	)		1,894
Other securities (debt and equity)		(1,248	)		781		(192	)		1,644		(1,440	)		2,425

Total	$	(11,112	)	$	130,901	$	(2,493	)	$	40,725	$	(13,605	)	$	171,626

The Corporation reviews the investment securities portfolio on a quarterly basis to monitor its exposure to other-than-temporary impairment that may result due to the current adverse economic conditions. 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 March 31, 2010, represents an other-than-temporary impairment as these unrealized losses are primarily attributable to changes in interest rates and the current volatile market conditions, and not credit deterioration. At March 31, 2010, the number of investment securities in an unrealized loss position for less than 12 months for municipal and mortgage-related securities was 27 and 11, respectively. For investment securities in an unrealized loss position for 12 months or more, the number of individual securities in the municipal and mortgage-related categories was 13 and 30, respectively. The unrealized losses reported for mortgage-related securities relate to non-agency mortgage-related securities as well as mortgage-related securities issued by government agencies such as the Federal National Mortgage Association (“FNMA”) and the Federal Home Loan Mortgage Corporation (“FHLMC”). 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.

13

The following is a summary of the credit loss portion of other-than-temporary impairment recognized in earnings on debt securities for 2009 and the three months ended March 31, 2010, respectively.


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

Balance of credit-related other-than-temporary impairment at April 1, 2009	$	(16,445	)	$	(5,027	)	$	(21,472	)
Adjustment for change in cash flows		677			—			677
Credit losses on newly identified impairment		(446	)		(2,000	)		(2,446	)

Balance of credit-related other-than-temporary impairment at December 31, 2009	$	(16,214	)	$	(7,027	)	$	(23,241	)
Adjustment for change in cash flows		238			—			238

Balance of credit-related other-than-temporary impairment at March 31, 2010	$	(15,976	)	$	(7,027	)	$	(23,003	)

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, 2009.


	Less than 12 months					12 months or more					Total
	Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value
December 31, 2009:						($ in Thousands)

U. S. Treasury securities	$	(28	)	$	2,871	$	—		$	—	$	(28	)	$	2,871
Federal agency securities		—			—		(1	)		46		(1	)		46
Obligations of state and political subdivisions (municipal securities)		(593	)		45,388		(313	)		8,334		(906	)		53,722
Residential mortgage-related securities		(10,507	)		184,069		(2,783	)		41,663		(13,290	)		225,732
Other securities (debt and equity)		(1,661	)		4,410		—			—		(1,661	)		4,410

Total	$	(12,789	)	$	236,738	$	(3,097	)	$	50,043	$	(15,886	)	$	286,781

Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank Stocks: At March 31, 2010, the Corporation had FHLB stock of $121.1 million and Federal Reserve Bank stock of $63.7 million, compared to FHLB stock of $121.1 million and Federal Reserve Bank stock of $60.2 million at December 31, 2009. During 2009, the Corporation redeemed $24.9 million of FHLB stock at par. 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 2010 and 2009, including but not limited to, consideration of operating performance, the severity and duration of market value declines, 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 2010 or 2009.

14

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. However, management believes it may be necessary to evaluate goodwill for impairment on a quarterly basis depending upon current market conditions, results of operations, and other factors. During 2009, management completed interim reviews of goodwill. These interim reviews of goodwill indicated that the carrying value of the banking segment exceeded its estimated fair value. Therefore, a step two analysis was performed for this segment, which indicated that the implied fair value of the banking segment exceeded the carrying value of the banking segment. Therefore, no impairment change was recorded. 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 March 31, 2010 and December 31, 2009, 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 three months ended March 31, 2010, and the year ended December 31, 2009.

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 Corporation’s banking segment, while the other intangibles are assigned to the wealth management segment as of March 31, 2010.

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
	Three months ended			Year ended
	March 31, 2010			December 31, 2009
	($ in Thousands)
Core deposit intangibles:
Gross carrying amount ⁽¹⁾	$	41,831		$	47,748
Accumulated amortization		(24,308	)		(29,288	)

Net book value	$	17,523		$	18,460

Amortization during the period		937			4,123

Other intangibles:
Gross carrying amount	$	20,433		$	20,433
Accumulated amortization		(10,155	)		(9,839	)

Net book value	$	10,278		$	10,594

Amortization during the period		316			1,420


(1)		Core deposit intangibles of $5.9 million were fully amortized during 2009 and have been removed from both the gross carrying amount and the accumulated amortization for 2010.

Mortgage servicing rights are included in other intangible assets, net in the consolidated balance sheets and are carried at the lower of amortized cost (i.e., initial capitalized amount, net of accumulated amortization) or estimated 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. 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

15

increases, requiring less valuation reserve. A valuation allowance is established through a charge to earnings to the extent the amortized cost of the mortgage servicing rights exceeds the estimated fair value by stratification. If it is later determined that all or a portion of the temporary impairment no longer exists for a stratification, the valuation is reduced through a recovery to earnings. An other-than-temporary impairment (i.e., recoverability is considered remote when considering interest rates and loan pay off activity) is recognized as a write-down of the mortgage servicing rights asset and the related valuation allowance (to the extent a valuation 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
	Three months ended			Year ended
	March 31, 2010			December 31, 2009
	($ in Thousands)
Mortgage servicing rights:
Mortgage servicing rights at beginning of period	$	80,986		$	56,025
Additions		5,058			44,580
Amortization		(5,523	)		(19,619	)

Mortgage servicing rights at end of period	$	80,521		$	80,986

Valuation allowance at beginning of period		(17,233	)		(10,457	)
(Additions) / Recoveries, net		902			(6,776	)

Valuation allowance at end of period		(16,331	)		(17,233	)

Mortgage servicing rights, net	$	64,190		$	63,753


Fair value of mortgage servicing rights	$	68,724		$	66,710
Portfolio of residential mortgage loans serviced for others (“servicing portfolio”)	$	7,751,000		$	7,667,000
Mortgage servicing rights, net to servicing portfolio		0.83	%		0.83	%
Mortgage servicing rights expense ⁽¹⁾	$	4,621		$	26,395


(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.

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 March 31, 2010. 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)
Nine months ending December 31, 2010	$	2,800	$	900	$	15,500
Year ending December 31, 2011		3,700		1,000		17,600
Year ending December 31, 2012		3,200		1,000		13,900
Year ending December 31, 2013		3,100		900		10,900
Year ending December 31, 2014		2,900		900		8,300
Year ending December 31, 2015		1,400		800		6,100

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NOTE 8: Long-term Funding

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


	March 31,		December 31,
	2010		2009
	($ in Thousands)
Federal Home Loan Bank advances	$	1,000,564	$	1,010,576
Repurchase agreements		200,000		500,000
Subordinated debt, net		225,295		225,247
Junior subordinated debentures, net		216,013		216,069
Other borrowed funds		2,107		2,106

Total long-term funding	$	1,643,979	$	1,953,998

Federal Home Loan Bank advances: Long-term advances from the FHLB had maturities through 2020 and had weighted-average interest rates of 2.02% at March 31, 2010, compared to 2.22% at December 31, 2009. These advances all had fixed contractual rates at both March 31, 2010, and December 31, 2009.

Repurchase agreements: The long-term repurchase agreements had maturities through 2010 and had weighted-average interest rates of 2.67% at March 31, 2010, and 2.60% at December 31, 2009. These repurchase agreements were 100% fixed rate at March 31, 2010, and 80% fixed rate at December 31, 2009. During the first quarter of 2010, the Corporation paid an early termination penalty of $2.5 million (included in other noninterest expense on the consolidated statements of income) on the repayment of $200 million of long-term repurchase agreements.

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%. 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.

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 2009 or during the first three months of 2010. The carrying value of the ASBC Debentures was $179.7 million at both March 31, 2010 and December 31, 2009. With its October 2005 acquisition, the Corporation acquired variable rate junior 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 3.05% at March 31, 2010) 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 3.70% at March 31, 2010) 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 2009 or during the first three months of 2010. The carrying value of the SFSC Debentures was $36.3 million and $36.4 million at March 31, 2010 and December 31, 2009, respectively.

17

NOTE 9: Other Comprehensive Income

A summary of activity in accumulated other comprehensive income follows.


	Three Months Ended						Year Ended
	March 31,			March 31,			December 31,
	2010			2009			2009
			($ in Thousands)
Net income (loss)	$	(26,389	)	$	42,725		$	(131,859	)
Other comprehensive income (loss), net of tax:
Investment securities available for sale:
Net unrealized gains		16,952			47,374			113,014
Reclassification adjustment for net gains realized in net income		(23,581	)		(10,596	)		(8,774	)
Accretion of investment securities with noncredit-related impairment losses not expected to be sold		154			—			441
Income tax expense (benefit)		2,876			(13,846	)		(37,534	)

Other comprehensive income (loss) on investment securities available for sale		(3,599	)		22,932			67,147
Defined benefit pension and postretirement obligations:
Prior service cost, net of amortization		104			117			467
Net loss, net of amortization		138			77			2,736
Income tax benefit		(93	)		(78	)		(1,236	)

Other comprehensive income on pension and postretirement obligations		149			116			1,967
Derivatives used in cash flow hedging relationships:
Net unrealized gains (losses)		1,506			2,515			8,540
Reclassification adjustment for net (gains) losses and interest expense for interest differential on derivatives realized in net income		(1,895	)		(1,010	)		(1,814	)
Income tax expense (benefit)		151			(677	)		(2,718	)

Other comprehensive income (loss) on cash flow hedging relationships		(238	)		828			4,008

Total other comprehensive income (loss)		(3,688	)		23,876			73,122

Comprehensive income (loss)	$	(30,077	)	$	66,601		$	(58,737	)

NOTE 10: Income Taxes

For the first quarter of 2010, the Corporation recognized income tax benefit of $23.6 million, compared to income tax benefit of $11.2 million for the first quarter of 2009. The change in income tax was primarily due to the level of pretax income (loss) between the comparable first quarter periods. In addition, during the first quarter of 2009, the Corporation recorded a $17.0 million, or $0.13 per common share, net decrease in the valuation allowance on and changes to state deferred tax assets as a result of the then recently enacted Wisconsin combined reporting tax legislation.

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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 and cash equivalents as collateral at March 31, 2010, and pledged $87 million of investment securities and cash equivalents as collateral at December 31, 2009.

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	Receive			Pay
	Amount		Fair Value			Category	Rate			Rate			Maturity
	($ in Thousands)
March 31, 2010
Interest rate swap — short-term borrowings	$	200,000	$	(7,980	)	Other liabilities		0.17	%		3.15	%	23 months

December 31, 2009
Interest rate swap — short-term borrowings	$	200,000	$	(7,588	)	Other liabilities		0.12	%		3.15	%	26 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

Amount of Gain /

Category of Gain

Derivatives

(Loss)

Category of Gain

Amount of Gain /

/ (Loss)

(Ineffective

Recognized in

/ (Loss)

(Loss)

Recognized in

Portion and

OCI on

Reclassified from

Income on

Amount

Derivatives

AOCI into

Derivatives

Excluded from

(Effective

Income (Effective

(Ineffective

Effectiveness

($ in Thousands)

Portion)

Testing)

Three Months Ended March 31, 2010

Interest Expense

Short-term

Interest rate swaps

$

1,895

borrowings

$

(1,506

)

borrowings

$

(4

)

Three Months Ended March 31, 2009

Interest Expense

Interest rate swaps

$

1,010

Short-term borrowings & Long-term funding

$

(2,515

)

Short-term borrowings & Long-term funding

$

(305

)

Cash flow hedges

The Corporation has variable-rate short-term and long-term borrowings 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.

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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 borrowings. In September 2007, the Corporation entered into an interest rate swap which hedges the interest rate risk in the cash flows of a long-term, variable-rate FHLB advance, which matured in June 2009. Hedge effectiveness is determined using regression analysis. The Corporation recognized combined ineffectiveness of less than $0.1 million for the first quarter of 2010 (which increased interest expense), compared to combined ineffectiveness of $0.2 million for the first quarter of 2009 (which decreased interest expense) and $0.3 million for full year 2009 (which decreased interest expense) relating to these cash flow hedge relationships. Derivative gains and losses reclassified from accumulated other comprehensive income to current period earnings are included in interest expense on short-term borrowings or long-term funding (i.e., the line item in which the hedged cash flows are recorded). At March 31, 2010, accumulated other comprehensive income included a deferred after-tax net loss of $4.7 million related to these derivatives, compared to a deferred after-tax net loss of $4.5 million at December 31, 2009. The net after-tax derivative loss included in accumulated other comprehensive income at March 31, 2010, is projected to be reclassified into net interest income in conjunction with the recognition of interest payments on the variable-rate, short-term borrowings 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)
March 31, 2010
Interest rate-related instruments — customer and mirror	$	1,129,615	$	52,087		Other assets		2.02	%		2.02	%	42 months
Interest rate-related instruments — customer and mirror		1,129,615		(55,715	)	Other liabilities		2.02	%		2.02	%	42 months
Interest rate lock commitments (mortgage)		179,783		967		Other assets		—			—		—
Forward commitments (mortgage)		299,305		590		Other assets		—			—		—
Foreign currency exchange forwards		25,598		1,425		Other assets		—			—		—
Foreign currency exchange forwards		20,777		(1,067	)	Other liabilities		—			—		—

December 31, 2009
Interest rate-related instruments — customer and mirror	$	1,126,222	$	49,445		Other assets		2.07	%		2.07	%	44 months
Interest rate—related instruments — customer and mirror		1,126,222		(52,047	)	Other liabilities		2.07	%		2.07	%	44 months
Interest rate lock commitments (mortgage)		245,948		(1,371	)	Other liabilities		—			—		—
Forward commitments (mortgage)		336,485		4,512		Other assets		—			—		—
Foreign currency exchange forwards		32,271		1,221		Other assets		—			—		—
Foreign currency exchange forwards		22,331		(671	)	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)
Three Months Ended March 31, 2010
Interest rate-related instruments — customer and mirror, net	Capital market fees, net	$	(1,025	)
Interest rate lock commitments (mortgage)	Mortgage banking, net		2,338
Forward commitments (mortgage)	Mortgage banking, net		(3,922	)
Foreign exchange forwards	Capital market fees, net		(62	)

Three Months Ended March 31, 2009
Interest rate-related instruments — customer and mirror, net	Capital market fees, net	$	499
Interest rate lock commitments (mortgage)	Mortgage banking, net		7,638
Forward commitments (mortgage)	Mortgage banking, net		(4,947	)
Foreign exchange forwards	Capital market fees, net		(62	)

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

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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 quarter of 2010 was a $1.0 million loss, while the net impact for the full year 2009 was a $1.1 million net loss and the net impact for the first quarter of 2009 was a $0.5 million net gain.

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 March 31, 2010, was a net gain of $1.6 million, comprised of the net gain of $1.0 million on interest rate lock commitments to originate residential mortgage loans held for sale to individual borrowers of approximately $180 million and the net gain of $0.6 million on forward commitments to sell residential mortgage loans to various investors of approximately $299 million. The fair value of the mortgage derivative at December 31, 2009, was a net gain of $3.1 million, comprised of the net loss of $1.4 million on interest rate lock commitments to originate residential mortgage loans held for sale to individual borrowers of approximately $246 million and the net gain of $4.5 million on forward commitments to sell residential mortgage loans to various investors of approximately $336 million. The fair value of the mortgage derivatives at March 31, 2009, was a net gain of $6.8 million, comprised of the net gain of $14.2 million on interest rate lock commitments to originate residential mortgage loans held for sale to individual borrowers of approximately $781 million and the net loss of $7.4 million on forward commitments to sell residential mortgage loans to various investors of approximately $1.1 billion.

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 March 31, 2010, the Corporation had $7 million in notional balances of foreign currency forwards related to loans, and $20 million in notional balances of foreign currency forwards related to customer transactions (with mirror foreign currency forwards of $20 million), which on a combined basis had a fair value of $0.4 million net gain. At December 31, 2009, the Corporation had $5 million in notional balances of foreign currency forwards related to loans, and $25 million in notional balances of foreign currency forwards related to customer transactions (with mirror foreign currency forwards of $25 million), which on a combined basis had a fair value of $0.5 million net gain. At March 31, 2009, the Corporation had $6 million in notional balances of foreign currency forwards related to loans, and $24 million in notional balances of foreign currency forwards related to customer transactions (with mirror foreign currency forwards of $24 million), which on a combined basis had a fair value of $0.1 million net loss.

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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 and other commitments.


	March 31, 2010		December 31, 2009
	($ in Thousands)
Commitments to extend credit, excluding commitments to originate residential mortgage loans held for sale ^{(1) (2)}	$	3,998,038	$	4,095,336
Commercial letters of credit ⁽¹⁾		18,010		19,248
Standby letters of credit ⁽³⁾		469,924		473,554
Purchase obligations ⁽⁴⁾		155,250		145,248


(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 March 31, 2010 or December 31, 2009.

(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 $3.1 million at both March 31, 2010 and December 31, 2009, respectively, as an estimate of the fair value of these financial instruments.

(4)		The purchase obligations include forward commitments to purchase mortgage-related investment securities issued by government agencies.

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 March 31, 2010, and December 31, 2009, the Corporation had a reserve for losses on unfunded commitments totaling $14.6 million and $14.2 million, respectively, included in other liabilities on the consolidated balance sheets.

Lending-related commitments include commitments to extend credit, interest rate lock 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

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revitalization of low-to-moderate-income neighborhoods throughout the local communities of its bank subsidiary. As a limited partner in these unconsolidated projects, the Corporation is allocated tax credits and deductions associated with the underlying projects. The aggregate carrying value of all these investments at March 31, 2010 and December 31, 2009, was $39 million, included in other assets on the consolidated balance sheets. Related to these investments, the Corporation has remaining commitments to fund of $13 million at March 31, 2010, and $15 million at December 31, 2009.

Contingent Liabilities

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. Because the Corporation cannot state with certainty the range of possible outcomes or plaintiffs’ ultimate damage claims, management cannot estimate the timing or specific possible loss or range of loss that may result from these proceedings. Management believes, based upon current knowledge, that liabilities arising out of any such current proceedings will not have a material adverse effect on the consolidated financial statements of the Corporation. However, given the indeterminate amounts sought in certain of these matters and the inherent unpredictability of such matters, no assurances can be made that the results of such proceedings will not have a material adverse effect on the Corporation’s consolidated operating results or cash flows in future periods. A lawsuit was filed against the Corporation alleging the unfair assessment and collection of overdraft fees. Refer to Part II, Item 1, “Legal Proceedings,” for additional information.

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. During 2009, the Corporation reduced the litigation reserves by $0.5 million to recognize its share of litigation settlements, resulting in a $1.8 million reserve for unfavorable litigation losses related to Visa at December 31, 2009. Based upon Visa’s revised liability estimate for litigation, including the current funding of litigation settlements, the Corporation recorded a $0.9 million reduction in the reserve for litigation losses and a corresponding reduction in the Visa escrow receivable. At March 31, 2010, the remaining reserve for unfavorable litigation losses related to Visa was $0.9 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 2009, Visa announced it had deposited an additional amount into the litigation escrow account, of which, the Corporation’s pro-rata share was $0.3 million. At March 31, 2010, the remaining receivable related to the Visa escrow account was $0.8 million.

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 certain 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 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 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 March 31, 2010 and December 31, 2009, there were approximately $91 million and $106 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

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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 both March 31, 2010 and December 31, 2009, there were $0.9 billion of such residential mortgage loans with credit risk recourse, upon which there have been negligible historical losses to the Corporation.

At March 31, 2010 and December 31, 2009, the Corporation provided a credit guarantee on contracts related to specific commercial loans 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 related to these credit guarantee contracts at both March 31, 2010 and December 31, 2009, 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 March 31, 2010, the Corporation’s potential risk exposure was approximately $25 million. As of January 1, 2009, the Corporation no longer provides reinsurance coverage for new loans in exchange for a portion of the PMI premium. The Corporation’s liability for reinsurance losses, including losses incurred but not yet reported, was $3.0 million and $2.4 million at March 31, 2010 and December 31, 2009, 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, 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 obligations of state and political subdivisions, mortgage-related 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. To validate the fair value estimates, assumptions, and controls, the Corporation looks to transactions for similar instruments and utilizes independent pricing provided by third-party vendors or brokers and relevant market indices. While none of these sources are solely indicative of fair value, they serve as directional indicators for the appropriateness of the Corporation’s fair value estimates. The Corporation has

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determined that the fair value measures of its investment securities are classified predominantly within Level 1 or 2 of the fair value hierarchy. See Note 6, “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 March 31, 2010, and December 31, 2009, 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.

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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 student loans and 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 student loans held for sale is based on the Corporation’s existing commitments to sell such loans, while the estimated fair value of the residential mortgage loans held for sale is 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 specific 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 March 31, 2010 and December 31, 2009, 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
	March 31, 2010		Level 1		Level 2		Level 3
			($ in Thousands)
Assets:
Investment securities available for sale:
U.S. Treasury securities	$	1,004	$	1,004	$	—	$	—
Federal agency securities		8,289		8,289		—		—
Obligations of state and political subdivisions		902,006		—		902,006		—
Residential mortgage-related securities		4,335,874		—		4,335,874		—
Commercial mortgage-related securities		1,894		—		1,894		—
Other securities (debt and equity)		18,305		11,133		7,172		—

Total investment securities available for sale	$	5,267,372	$	20,426	$	5,246,946	$	—
Derivatives (other assets)		55,069		—		53,512		1,557

Liabilities:
Derivatives (other liabilities)	$	64,762	$	—	$	64,762	$	—


			Fair Value Measurements Using
	December 31, 2009		Level 1		Level 2		Level 3
			($ in Thousands)
Assets:
Investment securities available for sale:
U.S. Treasury securities	$	3,875	$	3,875	$	—	$	—
Federal agency securities		43,407		43,407		—		—
Obligations of state and political subdivisions		885,165		—		885,165		—
Residential mortgage-related securities		4,882,519		—		4,882,519		—
Other securities (debt and equity)		20,567		13,613		6,954		—

Total investment securities available for sale	$	5,835,533	$	60,895	$	5,774,638	$	—
Derivatives (other assets)		55,178		—		50,666		4,512

Liabilities:
Derivatives (other liabilities)	$	61,677	$	—	$	60,306	$	1,371

The table below presents a rollforward of the balance sheet amounts for the year ended December 31, 2009 and the quarter ended March 31, 2010, 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, 2008	$	—		$	4,130
Net transfer in		2,000			—
Total net losses included in income:
Net impairment losses on investment securities		(2,000	)		—
Mortgage derivative loss, net		—			(989	)

Balance December 31, 2009	$	—		$	3,141

Total net losses included in income:
Net impairment losses on investment securities		—			—
Mortgage derivative loss, net		—			(1,584	)

Balance March 31, 2010	$	—		$	1,557

In valuing the $2.0 million investment security 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 reviewed the underlying collateral and other relevant data in developing the assumptions for this investment security, and $2.0 million credit-related other-than-temporary impairment was recognized for the year ended December 31, 2009.

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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 March 31, 2010 and December 31, 2009, 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
	March 31, 2010		Level 1		Level 2		Level 3
			($ in Thousands)
Assets:
Loans held for sale	$	274,003	$	—	$	274,003	$	—
Loans ⁽¹⁾		697,336		—		697,336		—
Mortgage servicing rights		64,190		—		—		64,190


			Fair Value Measurements Using
	December 31, 2009		Level 1		Level 2		Level 3
			($ in Thousands)
Assets:
Loans held for sale	$	81,238	$	—	$	81,238	$	—
Loans ⁽¹⁾		605,341		—		605,341		—
Mortgage servicing rights		63,753		—		—		63,753


(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.

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, is 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 $8 million and $13 million for the three months ended March 31, 2010 and 2009, respectively, and totaled approximately $74 million for the year ended December 31, 2009. In addition to other real estate owned measured at fair value upon initial recognition, the Corporation also recorded write-downs to the balance of other real estate owned for subsequent impairment of $3 million, $1 million, and $14 million to noninterest expense for the three months ended March 31, 2010 and 2009, and the year ended December 31, 2009, respectively.

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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 March 31, 2010 and December 31, 2009, were as follows:


	March 31, 2010				December 31, 2009
	Carrying				Carrying
	Amount		Fair Value		Amount			Fair Value
			($ in Thousands)
Financial assets:
Cash and due from banks	$	284,882	$	284,882	$	770,816		$	770,816
Interest-bearing deposits in other financial institutions		1,998,528		1,998,528		26,091			26,091
Federal funds sold and securities purchased under agreements to resell		19,220		19,220		23,785			23,785
Accrued interest receivable		83,924		83,924		87,447			87,447
Interest rate-related agreements (1)		52,087		52,087		49,445			49,445
Foreign currency exchange forwards		1,425		1,425		1,221			1,221
Investment securities available for sale		5,267,372		5,267,372		5,835,533			5,835,533
Federal Home Loan Bank and Federal Reserve Bank stocks		184,811		184,811		181,316			181,316
Loans held for sale		274,003		274,003		81,238			81,238
Loans, net		12,723,748		11,376,529		13,555,092			12,167,223
Bank owned life insurance		523,263		523,263		520,751			520,751
Financial liabilities:
Deposits	$	17,496,787	$	17,496,787	$	16,728,613		$	16,728,613
Accrued interest payable		16,685		16,685		21,214			21,214
Short-term borrowings		575,564		575,564		1,226,853			1,226,853
Long-term funding		1,643,979		1,717,080		1,953,998			2,028,042
Interest rate-related agreements (1)		63,695		63,695		59,635			59,635
Foreign currency exchange forwards		1,067		1,067		671			671
Standby letters of credit (2)		3,076		3,076		3,096			3,096
Interest rate lock commitments to originate residential mortgage loans held for sale		967		967		(1,371	)		(1,371	)
Forward commitments to sell residential mortgage loans		590		590		4,512			4,512


(1)		At both March 31, 2010 and December 31, 2009, 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)		The commitment on standby letters of credit was $0.5 billion at both March 31, 2010 and December 31, 2009. 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).

Loans held for sale - Fair value is estimated using the prices of the Corporation’s existing commitments to sell such loans and/or the quoted market prices for commitments to sell similar loans.

Loans, net — The fair value estimation process for the loan portfolio uses an exit price concept and reflects

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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, financial, and agricultural, 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 borrowings - 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 borrowings.

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.

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.

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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 months ended March 31, 2010 and 2009, and for the full year 2009 were as follows.


	Three Months Ended						Year Ended
	March 31,						December 31,
	2010			2009			2009
				($ in Thousands)
Components of Net Periodic Benefit Cost

Pension Plan:
Service cost	$	2,475		$	2,100		$	8,649
Interest cost		1,590			1,547			6,262
Expected return on plan assets		(2,739	)		(2,885	)		(11,520	)
Amortization of prior service cost		5			18			72
Amortization of actuarial loss		138			90			551

Total net periodic benefit cost	$	1,469		$	870		$	4,014


Postretirement Plan:
Interest cost	$	58		$	66		$	261
Amortization of prior service cost		99			99			395
Amortization of actuarial gain		—			(13	)		(54	)

Total net periodic benefit cost	$	157		$	152		$	602

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 regularly reviews the funding of its Pension Plan. The Corporation made a contribution of $10 million in the first quarter of 2010.

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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 to be 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.

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Selected segment information is presented below.


	Banking			Wealth Management			Other			Consolidated Total
	($ in Thousands)
As of and for the three months ended March 31, 2010
Net interest income	$	169,012		$	210		$	—		$	169,222
Provision for loan losses		165,345			—			—			165,345
Noninterest income		79,607			25,014			(1,060	)		103,561
Depreciation and amortization		14,013			312			—			14,325
Other noninterest expense		124,077			20,040			(1,060	)		143,057
Income taxes		(25,504	)		1,949			—			(23,555	)

Net income (loss)	$	(29,312	)	$	2,923		$	—		$	(26,389	)

Percent of consolidated net income		N/M			N/M			N/M			N/M

Total assets	$	23,050,061		$	126,249		$	(68,674	)	$	23,107,636

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

Total revenues *	$	248,619		$	25,224		$	(1,060	)	$	272,783
Percent of consolidated total revenues		91	%		9	%		—	%		100	%

As of and for the three months ended March 31, 2009

Net interest income	$	189,047		$	231		$	—		$	189,278
Provision for loan losses		105,424			—			—			105,424
Noninterest income		69,636			24,391			(1,060	)		92,967
Depreciation and amortization		12,766			335			—			13,101
Other noninterest expense		113,132			20,081			(1,060	)		132,153
Income taxes		(12,840	)		1,682			—			(11,158	)

Net income	$	40,201		$	2,524		$	—		$	42,725

Percent of consolidated net income		94	%		6	%		—	%		100	%
Total assets	$	24,292,908		$	118,956		$	(62,139	)	$	24,349,725

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

Total revenues *	$	258,683		$	24,622		$	(1,060	)	$	282,245
Percent 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.

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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

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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 several factors: management’s ongoing review and grading of the loan portfolio, consideration of historical loan loss and delinquency experience, trends in past due and nonperforming 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 that certain loan balances be classified differently or charged off 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 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. During 2009, quarterly impairment tests were completed. The step one analysis conducted for the wealth segment indicated that the estimated fair value exceeded its carrying value. Therefore, a step two analysis was not required for this reporting unit. The step one analysis completed for the banking segment indicated that the carrying value of the reporting unit exceeded its estimated fair value. Therefore, a step two analysis was performed for this segment, which indicated that the implied fair value of the banking segment exceeded the carrying value of the banking segment and no impairment charge was recorded in 2009. 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.

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.

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,

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future adjustments to these projections may be necessary if conditions differ substantially from the assumptions utilized in making these assumptions.

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 March 31, 2010 (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 $5.2 million (or 8%) lower, while if prepayment speeds were to decrease 25%, the estimated value of the mortgage servicing rights asset would have been approximately $4.2 million (or 7%) 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

37

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.

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. For financial reporting purposes, a valuation allowance has been recognized at March 31, 2010 and December 31, 2009, to offset deferred tax assets related to state net operating loss carryforwards of certain subsidiaries. Quarterly assessments are performed to determine if additional 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 quarterly losses. The Corporation believes the tax assets and liabilities are properly recorded in the consolidated financial statements. We have concluded that it is more likely than not that the tax benefits associated with the remaining deferred tax assets will be realized. However, there is no guarantee that the tax benefits associated with the remaining deferred tax assets will be fully realized. 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 91% of total revenues (as defined in the Note) for the first quarter of 2010. 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 9% for both first quarter periods in 2010 and 2009. Wealth management segment revenues were up $0.6 million (2%) and expenses were down $0.1 million (<1%) between the comparable first quarter periods of 2010 and 2009. Wealth segment assets (which consist predominantly of cash equivalents, investments, customer receivables, goodwill and intangibles) were up $7.3 million (6%) between March 31, 2010 and March 31, 2009, 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 section “Noninterest Income.” The major expenses for the wealth management segment are personnel expense (64% of total segment noninterest expense for both first quarter 2010 and the comparable period in 2009), as well as occupancy, processing, and other costs, which are covered generally in the consolidated discussion in section “Noninterest Expense.”

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Results of Operations — Summary

The Corporation recorded a net loss of $26.4 million for the three months ended March 31, 2010, compared to net income of $42.7 million for the three months ended March 31, 2009. Net loss available to common equity was $33.8 million for the three months ended March 31, 2010, or a net loss of $0.20 for both basic and diluted earnings per common share. Comparatively, net income available to common equity for the three months ended March 31, 2009, was $35.4 million, or net income of $0.28 for both basic and diluted earnings per common share. The net interest margin for the first quarter of 2010 was 3.35% compared to 3.59% for the first quarter of 2009.


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

	1^st Qtr.			4^th Qtr.			3^rd Qtr.			2^nd Qtr.			1^st Qtr.
	2010			2009			2009			2009			2009

Net income (loss) (Quarter)	$	(26,389	)	$	(173,237	)	$	15,994		$	(17,341	)	$	42,725
Net income (loss) (Year-to-date)		(26,389	)		(131,859	)		41,378			25,384			42,725

Net income (loss) available to common equity (Quarter)	$	(33,754	)	$	(180,591	)	$	8,652		$	(24,672	)	$	35,404
Net income (loss) available to common equity (Year-to-date)		(33,754	)		(161,207	)		19,384			10,732			35,404

Earnings (loss) per common share — basic (Quarter)	$	(0.20	)	$	(1.41	)	$	0.07		$	(0.19	)	$	0.28
Earnings (loss) per common share — basic (Year-to-date)		(0.20	)		(1.26	)		0.15			0.08			0.28

Earnings (loss) per common share — diluted (Quarter)	$	(0.20	)	$	(1.41	)	$	0.07		$	(0.19	)	$	0.28
Earnings (loss) per common share — diluted (Year-to-date)		(0.20	)		(1.26	)		0.15		$	0.08			0.28

Return on average assets (Quarter)		(0.46	)%		(3.02	)%		0.27	%		(0.29	)%		0.71	%
Return on average assets (Year-to-date)		(0.46	)		(0.56	)		0.23			0.21			0.71

Return on average equity (Quarter)		(3.40	)%		(23.72	)%		2.19	%		(2.40	)%		5.98	%
Return on average equity (Year-to-date)		(3.40	)		(4.54	)		1.90			1.76			5.98

Return on average common equity (Quarter)		(5.20	)%		(30.01	)%		1.43	%		(4.12	)%		6.00	%
Return on average common equity (Year-to-date)		(5.20	)		(6.74	)		1.08			0.90			6.00

Return on average tangible common equity (Quarter) ⁽¹⁾		(8.17	)%		(50.16	)%		2.39	%		(6.88	)%		10.05	%
Return on average tangible common equity (Year-to-date) ⁽¹⁾		(8.17	)		(11.25	)		1.81			1.51			10.05

Efficiency ratio (Quarter) ⁽²⁾		62.32	%		60.35	%		55.43	%		60.20	%		52.78	%
Efficiency ratio (Year-to-date) ⁽²⁾		62.32			57.24			56.22			56.59			52.78

Efficiency ratio, fully taxable equivalent (Quarter) ⁽²⁾		60.42	%		58.63	%		54.14	%		58.65	%		51.31	%
Efficiency ratio, fully taxable equivalent (Year-to-date) ⁽²⁾		60.42			55.73			54.78			55.08			51.31

Net interest margin (Quarter)		3.35	%		3.59	%		3.50	%		3.40	%		3.59	%
Net interest margin (Year-to-date)		3.35			3.52			3.50			3.49			3.59


(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)		Efficiency ratio = Noninterest expense divided by sum of taxable equivalent net interest income plus noninterest income, excluding investment securities gains (losses), net, and asset sales gains (losses), net.

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TABLE 1A
Reconciliation of Non-GAAP Measure

	1^st Qtr.			4^th Qtr.			3rd Qtr.			2^nd Qtr.			1st Qtr.
	2010			2009			2009			2009			2009

Efficiency ratio (Quarter) ^(a)		62.32	%		60.35	%		55.43	%		60.20	%		52.78	%
Taxable equivalent adjustment (Quarter)		(1.51	)		(1.39	)		(1.27	)		(1.30	)		(1.26	)
Asset sale gains / losses, net (Quarter)		(0.39	)		(0.33	)		(0.02	)		(0.25	)		(0.21	)

Efficiency ratio, fully taxable equivalent (Quarter) ^(b)		60.42	%		58.63	%		54.14	%		58.65	%		51.31	%

Efficiency ratio (Year-to-date) ^(a)		62.32	%		57.24	%		56.22	%		56.59	%		52.78	%
Taxable equivalent adjustment (Year-to-date)		(1.51	)		(1.30	)		(1.28	)		(1.28	)		(1.26	)
Asset sale gains / losses, net (Year-to-date)		(0.39	)		(0.21	)		(0.16	)		(0.23	)		(0.21	)

Efficiency ratio, fully taxable equivalent (Year-to-date)^(b)		60.42	%		55.73	%		54.78	%		55.08	%		51.31	%


(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 three months ended March 31, 2010, was $175.3 million, a decrease of $20.6 million or 10.5% versus the comparable quarter last year. As indicated in Tables 2 and 3, the decrease in taxable equivalent net interest income was attributable to unfavorable rate variances (as the impact of changes in the interest rate environment and product pricing reduced taxable equivalent net interest income by $16.4 million) and unfavorable volume variances (as changes in the balances and mix of earning assets and interest-bearing liabilities lowered taxable equivalent net interest income by $4.2 million).

The net interest margin for the first three months of 2010 was 3.35%, 24 bp lower than 3.59% for the same period in 2009. This comparable period decrease was a function of a 20 bp decrease in interest rate spread and a 4 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 20 bp reduction in interest rate spread was the net result of a 50 bp decrease in the cost of interest-bearing liabilities and a 70 bp decrease in the yield on earning assets, and was primarily attributable to an increase in the Corporation’s liquidity position (resulting in a 22 bp reduction in net interest margin during the quarter).

The Federal Reserve left interest rates unchanged during 2009 and the first three months of 2010, resulting in a level Federal funds rate of 0.25% for both first quarter 2010 and first quarter 2009. This interest rate environment, the declining level of commercial loan balances, the level of nonperforming loans, on-balance sheet liquidity needs, and competitive challenges may cause downward pressure on net interest margin for 2010.

The yield on earning assets was 4.24% for the first quarter of 2010, 70 bp lower than the comparable quarter last year. The yield on securities and short-term investments decreased 133 bp (to 3.46%), impacted by the lower interest rate environment and prepayment speeds of mortgage-related securities purchased at a premium. Loan yields were down 34 bp, (to 4.65%), due to the higher levels of nonaccrual loans, as well as the repricing of adjustable rate loans and competitive pricing pressures in a low interest rate environment.

The rate on interest-bearing liabilities of 1.11% for the first quarter of 2010 was 50 bp lower than the same quarter in 2009. Rates on interest-bearing deposits were down 71 bp (to 0.82%, reflecting the lower rate environment, yet moderated by product-focused pricing to retain balances), while the cost of wholesale funding increased 79 bp (to 2.55%). The cost of short-term borrowings was up 39 bp, while the cost of long-term funding declined 126 bp (primarily attributable to maturities of higher cost long-term funding).

Average earning assets were $21.1 billion for the first quarter of 2010, a decrease of $0.9 billion or 4.0% from the comparable quarter last year. Average loans declined $2.5 billion, while average securities and short-term investments increased $1.6 billion. The decrease in average loans was comprised of decreases in both commercial loans (down $1.7 billion) and consumer-related loans (down $0.8 billion).

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Average interest-bearing liabilities of $17.0 billion in first quarter 2010 were $1.5 billion or 8.1% lower than the first quarter of 2009. On average, interest-bearing deposits grew $1.8 billion (primarily attributable to $1.0 billion higher network transaction deposits and $1.2 billion higher interest-bearing demand deposits, partially offset by a $0.5 billion reduction in other time deposits), while noninterest-bearing demand deposits (a principal component of net free funds) were up $0.3 billion. Average wholesale funding balances decreased $3.3 billion between the comparable first quarter periods, primarily attributable to lower short-term borrowings as average long-term funding was relatively flat at $1.9 billion. As a percentage of total average interest-bearing liabilities, wholesale funding decreased from 33.0% in the first quarter of 2009 to 16.7% in the first quarter of 2010.

TABLE 2
Net Interest Income Analysis
($ in Thousands)


	Three months ended March 31, 2010							Three months ended March 31, 2009
			Interest		Average					Interest		Average
	Average		Income/		Yield/			Average		Income/		Yield/
	Balance		Expense		Rate			Balance		Expense		Rate

Earning assets:
Loans: ^{(1) (2) (3)}
Commercial	$	8,478,259	$	89,895		4.29	%	$	10,227,260	$	116,664		4.62	%
Residential mortgage		2,019,855		25,471		5.06	%		2,499,853		33,868		5.44	%
Retail		3,426,864		44,733		5.27	%		3,703,234		52,340		5.71	%

Total loans		13,924,978		160,099		4.65	%		16,430,347		202,872		4.99	%
Investments and other ⁽¹⁾		7,150,430		61,875		3.46	%		5,528,730		66,157		4.79	%

Total earning assets		21,075,408		221,974		4.24	%		21,959,077		269,029		4.94	%
Other assets, net		2,076,359							2,296,706

Total assets	$	23,151,767						$	24,255,783


Interest-bearing liabilities:
Interest-bearing deposits:
Savings deposits	$	858,440	$	250		0.12	%	$	857,111	$	322		0.15	%
Interest-bearing demand deposits		2,920,510		1,779		0.25	%		1,699,989		829		0.20	%
Money market deposits		6,242,934		8,221		0.53	%		4,945,174		11,566		0.95	%
Time deposits, excluding Brokered CDs		3,451,638		17,453		2.05	%		3,993,154		30,056		3.05	%

Total interest-bearing deposits, excluding Brokered CDs		13,473,522		27,703		0.83	%		11,495,428		42,773		1.51	%
Brokered CDs		660,361		1,042		0.64	%		864,185		3,826		1.80	%

Total interest-bearing deposits		14,133,883		28,745		0.82	%		12,359,613		46,599		1.53	%
Wholesale funding		2,837,001		17,973		2.55	%		6,098,266		26,608		1.76	%

Total interest-bearing liabilities		16,970,884		46,718		1.11	%		18,457,879		73,207		1.61	%

Noninterest-bearing demand deposits		3,010,041							2,686,363
Other liabilities		25,768							211,938
Stockholders’ equity		3,145,074							2,899,603

Total liabilities and equity	$	23,151,767						$	24,255,783


Interest rate spread						3.13	%						3.33	%
Net free funds						0.22	%						0.26	%
Net interest income, taxable equivalent, and net interest margin			$	175,256		3.35	%			$	195,822		3.59	%

Taxable equivalent adjustment				6,034							6,544

Net interest income			$	169,222						$	189,278


(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 ⁽¹⁾
($ in Thousands)


	Comparison of
	Three months ended March 31, 2010 versus 2009
				Variance Attributable to
	Income/Expense
	Variance			Volume			Rate

INTEREST INCOME
Loans: ⁽²⁾
Commercial	$	(26,769	)	$	(18,948	)	$	(7,821	)
Residential mortgage		(8,397	)		(6,172	)		(2,225	)
Retail		(7,607	)		(3,753	)		(3,854	)

Total loans		(42,773	)		(28,873	)		(13,900	)
Investments and other ⁽²⁾		(4,282	)		5,884			(10,166	)

Total interest income		(47,055	)		(22,989	)		(24,066	)

INTEREST EXPENSE
Interest-bearing deposits:
Savings deposits		(72	)		—			(72	)
Interest-bearing demand deposits		950			705			245
Money market deposits		(3,345	)		2,538			(5,883	)
Time deposits, excluding brokered CDs		(12,603	)		(3,685	)		(8,918	)

Interest-bearing deposits, excluding brokered CDs		(15,070	)		(442	)		(14,628	)
Brokered CDs		(2,784	)		(746	)		(2,038	)

Total interest-bearing deposits		(17,854	)		(1,188	)		(16,666	)
Wholesale funding		(8,635	)		(17,634	)		8,999

Total interest expense		(26,489	)		(18,822	)		(7,667	)

Net interest income, taxable equivalent	$	(20,566	)	$	(4,167	)	$	(16,399	)


(1)		The change in interest due to both rate and volume has been allocated in proportion to the relationship to the dollar amounts of the 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 and is net of the effects of certain disallowed interest deductions.

Provision for Loan Losses

The provision for loan losses for the first quarter of 2010 was $165.3 million, compared to $394.8 million and $105.4 million for the fourth and first quarters of 2009, respectively. Net charge offs were $163.3 million for first quarter 2010, compared to $233.8 million for fourth quarter 2009 and $57.6 million for first quarter 2009. Annualized net charge offs as a percent of average loans for first quarter 2010 were 4.76%, compared to 6.35% for fourth quarter 2009 and 1.42% for first quarter 2009. At March 31, 2010, the allowance for loan losses was $575.6 million, up from $573.5 million at December 31, 2009, and up from $313.2 million at March 31, 2009. The ratio of the allowance for loan losses to total loans was 4.33%, compared to 4.06% at December 31, 2009 and 1.97% at March 31, 2009. Nonperforming loans at March 31, 2010, were $1.2 billion, compared to $1.1 billion at December 31, 2009, and $452 million at March 31, 2009. 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 nonperforming loans, historical losses and delinquencies on each portfolio category, 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 “Nonperforming Loans and Other Real Estate Owned.”

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Noninterest Income

Noninterest income for the first quarter of 2010 was $98.0 million, up $9.1 million (10.2%) from the first quarter of 2009. Core fee-based revenue (as defined in Table 4 below) was $62.1 million, up $0.7 million from the comparable quarter last year. Net mortgage banking income was $5.4 million compared to $4.3 million for the first quarter of 2009. Net gains on investment securities and net losses on asset sales combined were $21.9 million, a favorable change of $12.5 million versus the first quarter of 2009. All other noninterest income categories combined were $8.6 million, down $5.2 million versus the comparable quarter last year.

TABLE 4
Noninterest Income
($ in Thousands)


	1^st Qtr.			1^st Qtr.			Dollar			Percent
	2010			2009			Change			Change

Trust service fees	$	9,356		$	8,477		$	879			10.4	%
Service charges on deposit accounts		26,059			27,205			(1,146	)		(4.2	)
Card-based and other nondeposit fees		10,820			10,174			646			6.3
Retail commissions		15,817			15,512			305			2.0

Core fee-based revenue		62,052			61,368			684			1.1
Mortgage banking income		10,028			20,557			(10,529	)		(51.2	)
Mortgage servicing rights expense		(4,621	)		(16,290	)		(11,669	)		(71.6	)

Mortgage banking, net		5,407			4,267			1,140			26.7
Capital market fees, net		130			2,626			(2,496	)		(95.0	)
Bank owned life insurance (“BOLI”) income		3,256			5,772			(2,516	)		(43.6	)
Other		5,253			5,455			(202	)		(3.7	)

Subtotal (“fee income”)		76,098			79,488			(3,390	)		(4.3	)
Asset sale losses, net		(1,641	)		(1,107	)		(534	)		48.2
Investment securities gains / (losses), net		23,581			10,596			12,985			122.5

Total noninterest income	$	98,038		$	88,977		$	9,061			10.2	%

Trust service fees were $9.4 million, up $0.9 million (10.4%) between the comparable first quarter periods, primarily due to stock market performance. The market value of assets under management was $5.5 billion and $4.8 billion at March 31, 2010 and 2009, respectively.

Service charges on deposit accounts were $26.1 million, down $1.1 million (4.2%) from the comparable first quarter last year. The decrease was primarily attributable to lower nonsufficient funds / overdraft fees (down $1.5 million to $16.4 million).

Card-based and other nondeposit fees were $10.8 million, up $0.6 million (6.3%) from first quarter 2009, primarily due to higher letter of credit and other commercial loan servicing fees. Retail commissions (which include commissions from insurance and brokerage product sales) were $15.8 million for first quarter 2010, up $0.3 million (2.0%) compared to first quarter 2009, including higher brokerage and variable annuity commissions (up $1.3 million to $3.3 million on a combined basis), partially offset by lower fixed annuity commissions (down $1.1 million), while insurance commissions were relatively flat.

Net mortgage banking income was $5.4 million for first quarter 2010, up $1.1 million compared to first quarter 2009. Net mortgage banking income 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 (collectively “gains on sales and related income”)) was $10.0 million for the first quarter of 2010, a decrease of $10.5 million compared to the first quarter of 2009. This $10.5 million decrease between the first quarter periods is primarily attributable to lower gains on sales and related income (down $10.3 million). Secondary mortgage production was $455 million for the first quarter of 2010, compared to $1.1 billion for the first quarter of 2009.

Mortgage servicing rights expense includes both the amortization of the mortgage servicing rights asset and

43

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 $11.7 million lower than first quarter 2009, with a $13.2 million decrease to the valuation reserve (comprised of a $12.3 million addition to the valuation reserve in first quarter 2009 compared to a $0.9 million recovery of the valuation reserve in first quarter 2010) and $1.5 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 March 31, 2010, the mortgage servicing rights asset, net of its valuation allowance, was $64.2 million, representing 83 bp of the $7.8 billion servicing portfolio, compared to a net mortgage servicing rights asset of $39.8 million, representing 60 bp of the $6.6 billion servicing portfolio at March 31, 2009. 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 related services provided to our customers) were $0.1 million, a decrease of $2.5 million compared to the first quarter of 2009. The decrease in capital market fees, net was due to a $0.4 million decrease in foreign currency related fees and a $2.1 million decrease in interest rate risk related fees (including an unfavorable credit valuation adjustment of $1.0 million for the first quarter of 2010 compared to a favorable credit valuation adjustment of $0.5 million for the first quarter of 2009). BOLI income was $3.3 million, down $2.5 million from first quarter 2009, due to death benefits received during the first quarter of 2009. Other income of $5.3 million was $0.2 million lower than first quarter 2009, with small declines in various other noninterest income categories.

Net asset sale losses were $1.6 million for first quarter 2010, compared to net asset sale losses of $1.1 million for the comparable quarter last year, with the $0.5 million increase primarily due to higher losses on sales of other real estate owned. Net investment securities gains of $23.6 million for first quarter 2010 were attributable to gains on the sale of $538 million of mortgage-related securities, while net investment securities gains of $10.6 million for first quarter 2009 were attributable to gains of $13.8 million on the sale of mortgage-related securities, partially offset by a $2.9 million loss on the sale of a mortgage-related security and other-than-temporary write-downs of $0.3 million on the Corporation’s holding of various equity securities. See Note 6, “Investment Securities,” of the notes to consolidated financial statements for additional disclosure.

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Noninterest Expense

Noninterest expense was $151.9 million for first quarter 2010, up $10.6 million (7.5%) over first quarter last year. Personnel expense was up $2.3 million (2.9%) between the comparable first quarter periods, while all remaining expense categories on a combined basis were up $8.3 million (13.0%).

TABLE 5
Noninterest Expense
($ in Thousands)


	1^st Qtr.			1^st Qtr.			Dollar			Percent
	2010			2009			Change			Change

Personnel expense	$	79,355		$	77,098		$	2,257			2.9	%
Occupancy		13,175			12,881			294			2.3
Equipment		4,385			4,589			(204	)		(4.4	)
Data processing		7,299			7,597			(298	)		(3.9	)
Business development and advertising		4,445			4,737			(292	)		(6.2	)
Stationery and supplies		1,347			1,778			(431	)		(24.2	)
Other intangible amortization expense		1,253			1,386			(133	)		(9.6	)
FDIC expense		11,829			5,775			6,054			104.8
Courier		1,075			1,291			(216	)		(16.7	)
Postage		1,738			2,148			(410	)		(19.1	)
Legal and professional fees		2,795			4,241			(1,446	)		(34.1	)
Foreclosure/OREO expense		7,729			5,013			2,716			54.2
Other		15,434			12,730			2,704			21.2

Total noninterest expense	$	151,859		$	141,264		$	10,595			7.5	%


Personnel expense to Total noninterest expense		52.3	%		54.6	%

Personnel expense (which includes salary-related expenses and fringe benefit expenses) was $79.4 million for first quarter 2010, up $2.3 million (2.9%) versus the first quarter of 2009. Average full-time equivalent employees were 4,777 for first quarter 2010, down 7.1% from 5,143 for first quarter 2009. Salary-related expenses increased $0.5 million (0.8%). This increase was the result of higher compensation and commissions (up $1.0 million or 1.7%, including merit increases between the years and higher compensation related to the vesting of stock options and restricted stock grants), partially offset by declines in formal / discretionary and signing bonuses (down $0.5 million or 14.1%). Fringe benefit expenses were up $1.8 million (11.4%) versus the first quarter of 2009, including higher benefit plan and other fringe benefit expenses (up $1.3 million) and higher costs of premium-based benefits (up $0.5 million).

Compared to the first quarter of 2009, occupancy expense of $13.2 million was up $0.3 million (2.3%), equipment expense of $4.4 million was down $0.2 million (4.4%), data processing expense of $7.3 million was down $0.3 million (3.9%), business development and advertising of $4.4 million was down $0.3 million (6.2%), stationery and supplies of $1.3 million was down $0.4 million (24.2%), courier expense of $1.1 million was down $0.2 million (16.7%), and postage expense of $1.7 million was down $0.4 million (19.1%), reflecting efforts to control selected discretionary expenses. Other intangible amortization decreased $0.1 million (9.6%), attributable to the full amortization of certain intangible assets during 2009. FDIC expense increased $6.1 million due to the deposit insurance rate increase, as well as a larger assessable deposit base. Legal and professional fees of $2.8 million decreased $1.4 million primarily due to lower legal and other professional consultant costs related to corporate projects completed in 2009. Foreclosure / OREO expenses of $7.7 million increased $2.7 million, primarily attributable to a $2.5 million increase in OREO write-downs. Other expense increased $2.7 million (21.2%) from the comparable quarter last year, with first quarter 2010 including a $2.5 million early termination penalty on the repayment of $200 million of long-term funding, as well as a $0.4 million increase to the reserve for losses on unfunded commitments (versus none in the first quarter of 2009). For the remainder of 2010, the Corporation expects FDIC expense will continue to remain elevated and foreclosure / OREO expenses will remain elevated due to continued pressure on foreclosure expenses.

45

Income Taxes

For the first quarter of 2010, the Corporation recognized income tax benefit of $23.6 million, compared to income tax benefit of $11.2 million for the first quarter of 2009. The change in income tax was primarily due to the level of pretax income (loss) between the comparable first quarter periods. In addition, during the first quarter of 2009, the Corporation recorded a $17.0 million, or $0.13 per common share, net decrease in the valuation allowance on and changes to state deferred tax assets as a result of the then recently enacted Wisconsin combined reporting tax legislation.

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 March 31, 2010, total assets were $23.1 billion, an increase of $0.2 billion (4% annualized) since December 31, 2009. The increase in assets was primarily due to a $1.5 billion increase in cash and cash equivalents and a $193 million increase in loans held for sale, partially offset by an $829 million decline in loans and a $568 million decrease in investment securities available for sale. The growth in assets was primarily funded by deposits, as both short-term borrowings and long-term funding declined since year end 2009.

Loans of $13.3 billion at March 31, 2010, were down $0.8 billion from December 31, 2009, with declines in both commercial and consumer-related loan balances, and minimal change in the mix of loans between the sequential periods. The first quarter decline in loans was predominantly due to commercial loans (down $0.6 billion, led by commercial, financial and agriculture loans), and installment loans (down $0.1 billion, due to the transfer of $156 million of student loans into the loans held for sale category). The Corporation made progress on the initiative of reducing its exposure to Shared National Credits during the first quarter of 2010, as the Shared National Credit loan portfolio declined 7% since year-end 2009 (from $988 million at December 31, 2009 to $917 million at March 31, 2010) and declined 23% since March 31, 2009. Investment securities available for sale were $5.3 billion, down $568 million from year end 2009 (primarily due to the sale of $538 million of mortgage-related investment securities during the first quarter of 2010). For the remainder of 2010, the Corporation anticipates that loan balances will continue to decline due to Corporate decisions to exit specific credit relationships (e.g. Shared National Credits), ongoing efforts to resolve problem credits, and reduced demand related to the continued economic uncertainty.

At March 31, 2010, total deposits of $17.5 billion were up $0.8 billion (5%) from December 31, 2009, primarily attributable to increases in money market and brokered CDs. Since year end 2009, money market deposits increased $0.7 billion (primarily in network transaction deposits) and brokered CDs grew $0.6 billion, while all remaining interest-bearing deposit accounts decreased $0.3 billion on a combined basis. Noninterest-bearing demand deposits decreased to $3.0 billion and represented 18% of total deposits, compared to 20% of total deposits at December 31, 2009, reflecting the usual seasonal decline. Wholesale funding of $2.2 billion was down $1.0 billion since year-end 2009, with short-term borrowings down $0.7 billion and long-term funding decreasing $0.3 billion (including the early repayment of $0.2 billion of long-term repurchase agreements for which the Corporation incurred an early termination penalty of $2.5 million).

Since March 31, 2009, loans declined $2.6 billion, with commercial loans down $1.9 billion (19%) and consumer-related loan balances down $0.7 million (12%). Since March 31, 2009, deposits grew $1.6 billion, primarily attributable to a $1.1 billion increase in money market deposits (which includes a $0.9 billion increase in network transaction deposits) and a $1.1 billion increase in interest-bearing demand deposits, and a $0.7 billion decrease in other time deposits. Given the increase in deposit balances, wholesale funding was reduced by $3.1 billion since March 31, 2009, including a $2.8 billion decrease in short-term borrowings and a $0.3 billion decrease in long- term funding.

46

TABLE 6
Period End Loan Composition
($ in Thousands)


	March 31, 2010					December 31, 2009					September 30, 2009					June 30, 2009					March 31, 2009
			% of					% of					% of					% of					% of
	Amount		Total			Amount		Total			Amount		Total			Amount		Total			Amount		Total

Commercial, financial, and agricultural	$	3,099,265		23	%	$	3,450,632		24	%	$	3,613,457		25	%	$	3,904,925		25	%	$	4,160,274		26	%
Commercial real estate		3,699,139		28			3,817,066		27			3,902,340		26			3,737,749		24			3,575,301		22
Real estate construction		1,281,868		10			1,397,493		10			1,611,857		11			1,963,919		13			2,228,090		14
Lease financing		87,568		1			95,851		1			102,130		1			110,262		1			116,100		1

Commercial		8,167,840		62			8,761,042		62			9,229,784		63			9,716,855		63			10,079,765		63
Home equity ⁽¹⁾		2,468,587		18			2,546,167		18			2,591,262		17			2,656,747		17			2,784,248		18
Installment		759,025		6			873,568		6			885,970		6			844,065		6			853,214		5

Retail		3,227,612		24			3,419,735		24			3,477,232		23			3,500,812		23			3,637,462		23
Residential mortgage		1,903,869		14			1,947,848		14			2,058,581		14			2,092,440		14			2,200,725		14

Total loans	$	13,299,321		100	%	$	14,128,625		100	%	$	14,765,597		100	%	$	15,310,107		100	%	$	15,917,952		100	%


Farmland	$	45,636		1	%	$	47,514		1	%	$	48,584		1	%	$	52,010		1	%	$	56,258		2	%
Multi-family		526,963		14			543,936		14			538,724		14			500,363		13			507,722		14
Owner occupied		1,156,318		32			1,198,075		32			1,264,295		32			1,335,935		36			1,258,677		35
Non-owner occupied		1,970,222		53			2,027,541		53			2,050,737		53			1,849,441		50			1,752,644		49

Commercial real estate	$	3,699,139		100	%	$	3,817,066		100	%	$	3,902,340		100	%	$	3,737,749		100	%	$	3,575,301		100	%


1-4 family construction	$	220,630		17	%	$	251,307		18	%	$	293,568		18	%	$	329,699		17	%	$	398,711		18	%
All other construction		1,061,238		83			1,146,186		82			1,318,289		82			1,634,220		83			1,829,379		82

Real estate construction	$	1,281,868		100	%	$	1,397,493		100	%	$	1,611,857		100	%	$	1,963,919		100	%	$	2,228,090		100	%


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

TABLE 7
Period End Deposit Composition
($ in Thousands)


	March 31, 2010					December 31, 2009					September 30, 2009					June 30, 2009					March 31, 2009
			% of					% of					% of					% of					% of
	Amount		Total			Amount		Total			Amount		Total			Amount		Total			Amount		Total

Noninterest-bearing demand	$	3,023,247		18	%	$	3,274,973		20	%	$	2,984,486		18	%	$	2,846,570		17	%	$	2,818,088		18	%
Savings		897,740		5			845,509		5			871,539		5			898,527		6			895,310		6
Interest-bearing demand		2,939,390		17			3,099,358		18			2,395,429		15			2,242,800		14			1,796,724		11
Money market		6,522,901		37			5,806,661		35			5,724,418		35			5,410,498		33			5,410,095		34
Brokered CDs		742,119		4			141,968		1			653,090		4			930,582		6			922,491		6
Other time		3,371,390		19			3,560,144		21			3,817,147		23			3,991,414		24			4,030,481		25

Total deposits	$	17,496,787		100	%	$	16,728,613		100	%	$	16,446,109		100	%	$	16,320,391		100	%	$	15,873,189		100	%

Total deposits, excluding Brokered CDs	$	16,754,668		96	%	$	16,586,645		99	%	$	15,793,019		96	%	$	15,389,809		94	%	$	14,950,698		94	%
Network transaction deposits included above in interest-bearing demand and money market	$	2,641,648		15	%	$	1,926,539		11	%	$	1,767,271		11	%	$	1,605,722		10	%	$	1,759,656		11	%
Total deposits, excluding Brokered CDs and network transaction deposits	$	14,113,020		81	%	$	14,660,106		88	%	$	14,025,748		85	%	$	13,784,087		84	%	$	13,191,042		83	%

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.

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 loans (see Table 9). To assess the appropriateness of the

47

allowance for loan losses, an allocation methodology is applied by the Corporation. The allocation methodology focuses on evaluation of several factors, including but not limited to: evaluation of facts and issues related to specific loans, management’s on-going review and grading of the loan portfolio, consideration of historical loan loss and delinquency experience on each portfolio category, trends in past due and nonperforming loans, the level of potential problem loans, the risk characteristics of the various classifications of loans, changes in the size and character of the loan portfolio, concentrations of loans to specific borrowers or industries, existing economic conditions, the fair value of underlying collateral, and other qualitative and quantitative factors which could affect potential credit losses. Assessing these numerous factors involves significant judgment. Therefore, management considers the allowance for loan losses a critical accounting policy (see section “Critical Accounting Policies”).

The allocation methodology used at March 31, 2010 and December 31, 2009 was comparable, whereby the Corporation segregated its loss factors allocations, used for both criticized (defined as specific loans warranting either specific allocation or a criticized status of special mention, substandard, or doubtful) and non-criticized loan categories (which include watch rated loans), into a component primarily based on historical loss rates and a component primarily based on other qualitative factors that may affect loan collectibility. Management allocates the allowance for loan losses for credit losses by pools of risk. First, a valuation allowance estimate is established for specifically identified 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 by loan type (used for both criticized and non-criticized loan pools), primarily based on historical loss rates with consideration for loan type, historical loss and delinquency experience, and industry statistics. Loans that are 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 are reviewed periodically and adjusted to reflect changes in trends 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 additional factors evaluated by management, such as limitations within the credit risk grading process, known current economic or business conditions that may not yet show in trends, industry or other concentrations with current issues that impose higher inherent risks than are reflected in the loss factors, and other relevant considerations.

At March 31, 2010, the allowance for loan losses was $575.6 million compared to $313.2 million at March 31, 2009, and $573.5 million at December 31, 2009. At March 31, 2010, the allowance for loan losses to total loans was 4.33% and covered 48% of nonperforming loans, compared to 1.97% and 69%, respectively, at March 31, 2009, and 4.06% and 51%, respectively, at December 31, 2009. At March 31, 2010, the Corporation had $988 million of specifically identified impaired loans with a current allowance for loan losses allocation of $159 million and for which the Corporation had recognized $292 million of net charge offs resulting in a net mark of 65% on impaired loans. Tables 8 and 9 provide additional information regarding activity in the allowance for loan losses, impaired loans, and nonperforming assets.

The provision for loan losses for the first quarter of 2010 was $165.3 million, compared to $105.4 million for the first quarter of 2009, and $394.8 million for the fourth quarter of 2009. Net charge offs were $163.3 million for the three months ended March 31, 2010, $57.6 million for the comparable period ended March 31, 2009, and $233.8 million for the fourth quarter of 2009. The increase in net charge offs since March 31, 2009, was mainly attributable to a higher incidence of larger (greater than $2 million) commercial net charge offs within the residential and land development loans, and in the financial services and housing-related industries, while the increase in consumer-related net charge offs was primarily attributable to deteriorating economic conditions and a weak housing market. The ratio of net charge offs to average loans on an annualized basis was 4.76%, 1.42%, and 6.35% for the quarterly periods ended March 31, 2010, March 31, 2009, and December 31, 2009, respectively.

Asset quality stress experienced during the past few years accelerated considerably during 2009 with the Corporation experiencing elevated net charge offs and higher nonperforming loan levels compared to the Corporation’s historical trends. Industry issues impacting asset quality during this period included a general deterioration in economic factors (such as higher and more volatile energy prices, rising unemployment, the fall of the dollar, and concerns about inflation or recession); declining commercial and residential real estate markets; and waning consumer confidence. Declining collateral values have significantly contributed to the elevated levels of nonperforming loans, net charge offs, and allowance for loan losses, resulting in the increase in the provision for loan losses that the Corporation has experienced in recent periods. During this time period, the Corporation

48

has continued to review its underwriting and risk-based pricing guidelines for commercial real estate and real estate construction lending, as well as on new home equity and residential mortgage loans, to reduce potential exposure within these portfolio categories. As we continue to take actions to deal with nonperforming loans, we believe the loan loss provision will continue to moderate over the next few quarters, while charge offs will remain elevated as we work through our remaining problem loans. To help achieve this strategy, we are considering potential sales of nonperforming loans.

While there was minimal change in overall loan mix, loans declined $0.8 billion since year end 2009 with declines in both commercial and consumer-related loan balances (down $0.6 billion and $0.2 billion, respectively); and compared to March 31, 2009, loans declined $2.6 billion with commercial loans down $1.9 billion and consumer-related loan balances down $0.7 billion (see section “Balance Sheet” and Table 6). Criticized loans decreased 7% since year-end 2009 (representing 23% of total loans at both March 31, 2010 and December 31, 2009), and compared to a year ago, criticized loans increased 29% (representing 15% of total loans at March 31, 2009). Loans past due 30-89 days decreased $75 million since year-end 2009 (with commercial past due loans down $69 million and consumer-related past due loans down $6 million), and decreased $81 million since March 31, 2009 (with commercial and consumer-related past due loans down $64 million and $17 million, respectively). Since year-end 2009, nonperforming loans rose $88 million (with commercial nonperforming loans up $79 million and consumer-related nonperforming loans up $9 million) and increased $758 million since March 31, 2009 (with commercial and consumer-related nonperforming loans up $697 million and $61 million, respectively). Nonperforming loans to total loans were 9.10%, 7.94%, and 2.84% at March 31, 2010, and December 31 and March 31, 2009, respectively (see Table 9). The allowance for loan losses to loans increased to 4.33% at March 31, 2010, compared to 4.06% at year-end 2009 and 1.97% at March 31, 2009.

Management believes the level of allowance for loan losses to be appropriate at March 31, 2010 and December 31, 2009.

Consolidated net income 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, new management information as a result of enhancements in our credit infrastructure, 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 that certain loan balances be classified differently or charged off when their credit evaluations differ from those of management, based on their judgments about information available to them at the time of their examination.

49

TABLE 8
Allowance for Loan Losses
($ in Thousands)


	At and for the three months										At and for the year
	ended March 31,										ended December 31,
	2010					2009					2009

Allowance for Loan Losses:
Balance at beginning of period	$	573,533				$	265,378				$	265,378
Provision for loan losses		165,345					105,424					750,645
Charge offs		(174,627	)				(60,174	)				(452,206	)
Recoveries		11,322					2,600					9,716

Net charge offs		(163,305	)				(57,574	)				(442,490	)

Balance at end of period	$	575,573				$	313,228				$	573,533


Net loan charge offs (recoveries):				(A	)				(A	)				(A	)
Commercial, financial, and agricultural	$	63,699		795		$	35,890		341		$	155,677		401
Commercial real estate (CRE)		21,328		230			2,858		32			56,239		150
Real estate construction		60,186		1,780			3,452		62			157,197		816
Lease financing		774		341			2		1			1,570		144

Total commercial		145,987		698			42,202		167			370,683		383
Home equity		11,769		190			10,742		153			48,790		181
Installment		2,222		98			1,986		94			8,839		103

Total retail		13,991		166			12,728		139			57,629		162
Residential mortgage		3,327		67			2,644		43			14,178		60

Total net charge offs	$	163,305		476		$	57,574		142		$	442,490		284


CRE & Construction Net Charge Off Detail:				(A	)				(A	)				(A	)
Farmland	$	189		163		$	(39	)	(28	)	$	146		28
Multi-family		1,117		83			669		54			6,225		119
Owner occupied		3,997		138			866		28			7,352		58
Non-owner occupied		16,025		325			1,362		31			42,516		224

Commercial real estate	$	21,328		230		$	2,858		32		$	56,239		150


1-4 family construction	$	7,701		1,327		$	876		86		$	38,662		1,129
All other construction		52,485		1,873			2,576		57			118,535		748

Real estate construction	$	60,186		1,780		$	3,452		62		$	157,197		816



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

Ratios:
Allowance for loan losses to total loans				4.33	%				1.97	%				4.06	%
Allowance for loan losses to net charge offs (annualized)				0.9	x				1.3	x				1.3	x

50

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


	March 31,			December 31,			September 30,			June 30,			March 31,
Quarterly Trends:	2010			2009			2009			2009			2009
Allowance for Loan Losses:
Balance at beginning of period	$	573,533		$	412,530		$	407,167		$	313,228		$	265,378
Provision for loan losses		165,345			394,789			95,410			155,022			105,424
Charge offs		(174,627	)		(236,367	)		(92,340	)		(63,325	)		(60,174	)
Recoveries		11,322			2,581			2,293			2,242			2,600

Net charge offs		(163,305	)		(233,786	)		(90,047	)		(61,083	)		(57,574	)

Balance at end of period	$	575,573		$	573,533		$	412,530		$	407,167		$	313,228


Impaired Loans Analysis:
Impaired loan amount (pre charge off)	$	1,280,239		$	1,152,323		$	801,039		$	685,195		$	407,800
Cumulative charge offs recognized		(292,428	)		(244,137	)		(116,929	)		(113,041	)		(86,729	)

Current impaired loan balance		987,811			908,186			684,110			572,154			321,071
Reserves on impaired loans		158,705			141,675			72,929			84,455			45,252

Current balance, net of reserves	$	829,106		$	766,511		$	611,181		$	487,699		$	275,819


Current mark on impaired loans *		65	%		67	%		76	%		71	%		68	%


*		Current mark on impaired loans = Current balance, net of reserves divided by Impaired loan amount (pre charge off).


Net loan charge offs (recoveries):			(A)					(A)					(A)				(A)					(A)
Commercial, financial, and agricultural	$	63,699		795	$	42,940			490		$	57,480		611	$	19,367		191	$	35,890			341
Commercial real estate (CRE)		21,328		230		40,550			412			4,449		45		8,382		92		2,858			32
Real estate construction		60,186		N/M		124,659			N/M			12,837		285		16,249		307		3,452			62
Lease financing		774		341		261			105			319		119		988		349		2			1

Total commercial		145,987		698		208,410			915			75,085		313		44,986		182		42,202			167
Home equity		11,769		190		16,503			254			11,202		170		10,343		152		10,742			153
Installment		2,222		98		2,099			94			2,433		113		2,321		110		1,986			94

Total retail		13,991		166		18,602			213			13,635		156		12,664		142		12,728			139
Residential mortgage		3,327		67		6,774			127			1,327		23		3,433		53		2,644			43

Total net charge offs	$	163,305		476	$	233,786			635		$	90,047		234	$	61,083		152	$	57,574			142


CRE & Construction Net Charge Off Detail:			(A)					(A)					(A)				(A)					(A)
Farmland	$	189		163	$	(25	)		(21	)	$	—		—	$	210		154	$	(39	)		(28	)
Multi-family		1,117		83		4,700			331			444		33		412		33		669			54
Owner occupied		3,997		138		2,013			65			2,102		62		2,371		74		866			28
Non-owner occupied		16,025		325		33,862			649			1,903		39		5,389		121		1,362			31

Commercial real estate	$	21,328		230	$	40,550			412		$	4,449		45	$	8,382		92	$	2,858			32

1-4 family construction	$	7,701		1,327	$	23,926			N/M		$	11,459		N/M	$	2,401		274	$	876			86
All other construction		52,485		1,873		100,733			N/M			1,378		37		13,848		313		2,576			57

Real estate construction	$	60,186		1,780	$	124,659			N/M		$	12,837		285	$	16,249		307	$	3,452			62

(A) — Ratio of net charge offs to average loans by loan type in basis points.
N/M — Not meaningful.

TABLE 9
Nonperforming Assets
($ in Thousands)


	March 31,			December 31,			September 30,			June 30,			March 31,
	2010			2009			2009			2009			2009
Nonperforming assets:
Nonaccrual loans:
Commercial	$	1,047,840		$	964,888		$	737,817		$	616,434		$	355,579
Residential mortgage		85,740			81,811			75,681			57,277			51,248
Retail		46,605			31,100			31,822			26,803			26,419

Total nonaccrual loans		1,180,185			1,077,799			845,320			700,514			433,246
Accruing loans past due 90 days or more:
Commercial		5,450			9,394			6,155			3,339			905
Residential		—			—			—			—			10
Retail		903			15,587			17,019			16,446			15,087

Total accruing loans past due 90 days or more		6,353			24,981			23,174			19,785			16,002
Restructured loans:
Commercial		763			480			265			430			326
Residential		15,875			13,410			12,540			9,889			2,128
Retail		6,782			5,147			4,451			2,770			473

Total restructured loans		23,420			19,037			17,256			13,089			2,927

Total nonperforming loans (NPLs)		1,209,958			1,121,817			885,750			733,388			452,175
Other real estate owned (OREO)		62,220			68,441			60,010			51,633			54,883

Total nonperforming assets (NPAs)	$	1,272,178		$	1,190,258		$	945,760		$	785,021		$	507,058


Ratios:
NPLs to total loans		9.10	%		7.94	%		6.00	%		4.79	%		2.84	%
NPAs to total loans plus OREO		9.52			8.38			6.38			5.11			3.17
NPAs to total assets		5.51			5.20			4.13			3.27			2.08
Allowance for loan losses to NPLs		47.57			51.13			46.57			55.52			69.27
Allowance for loan losses to total loans		4.33			4.06			2.79			2.66			1.97


Nonperforming assets by type:			(A)					(A)					(A)					(A)					(A)
Commercial, financial, and agricultural	$	180,182		6	%	$	234,418		7	%	$	209,843		6	%	$	187,943		5	%	$	102,257		2	%
Commercial real estate		356,853		10	%		307,478		8	%		213,736		5	%		165,929		4	%		100,838		3	%
Real estate construction		487,552		38	%		413,360		30	%		301,844		19	%		264,402		13	%		152,008		7	%
Leasing		29,466		34	%		19,506		20	%		18,814		18	%		1,929		2	%		1,707		1	%

Total commercial		1,054,053		13	%		974,762		11	%		744,237		8	%		620,203		6	%		356,810		4	%
Home equity		47,231		2	%		44,257		2	%		45,905		2	%		38,474		1	%		35,224		1	%
Installment		7,059		1	%		7,577		1	%		7,387		1	%		7,545		1	%		6,755		1	%

Total retail		54,290		2	%		51,834		2	%		53,292		2	%		46,019		1	%		41,979		1	%
Residential mortgage		101,615		5	%		95,221		5	%		88,221		4	%		67,166		3	%		53,386		2	%

Total nonperforming loans		1,209,958		9	%		1,121,817		8	%		885,750		6	%		733,388		5	%		452,175		3	%
Commercial real estate owned		46,425					52,468					45,188					36,818					36,729
Residential real estate owned		11,397					11,572					11,635					11,628					13,484
Bank properties real estate owned		4,398					4,401					3,187					3,187					4,670

Other real estate owned		62,220					68,441					60,010					51,633					54,883

Total nonperforming assets	$	1,272,178				$	1,190,258				$	945,760				$	785,021				$	507,058


Commercial real estate & Real estate construction NPLs Detail:
Farmland	$	2,801		6	%	$	1,524		3	%	$	1,303		3	%	$	400		1	%	$	706		1	%
Multi-family		32,835		6	%		17,867		3	%		23,317		4	%		13,696		3	%		11,414		2	%
Owner occupied		70,444		6	%		61,170		5	%		46,623		4	%		45,304		3	%		35,867		3	%
Non-owner occupied		250,773		13	%		226,917		11	%		142,493		7	%		106,529		6	%		52,851		3	%

Commercial real estate	$	356,853		10	%	$	307,478		8	%	$	213,736		5	%	$	165,929		4	%	$	100,838		3	%


1-4 family construction	$	92,828		42	%	$	77,902		31	%	$	88,849		30	%	$	91,216		28	%	$	58,443		15	%
All other construction		394,724		37	%		335,458		29	%		212,995		16	%		173,186		11	%		93,565		5	%

Real estate construction	$	487,552		38	%	$	413,360		30	%	$	301,844		19	%	$	264,402		13	%	$	152,008		7	%

(A) — Ratio of nonperforming loans by type to total loans by type.

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


	March 31,		December 31,		September 30,		June 30,		March 31,
	2010		2009		2009		2009		2009
Loans 30-89 days past due by type:
Commercial, financial, and agricultural	$	51,042	$	64,369	$	43,159	$	47,515	$	60,838
Commercial real estate		69,836		81,975		50,029		66,288		61,587
Real estate construction		13,805		56,559		39,184		35,166		75,136
Leasing		98		823		873		18,833		759

Total commercial		134,781		203,726		133,245		167,802		198,320
Home equity		12,919		14,304		16,852		19,755		18,137
Installment		4,794		8,499		7,401		7,577		10,382

Total retail		17,713		22,803		24,253		27,332		28,519
Residential mortgage		12,786		14,226		17,994		14,189		19,015

Total loans past due 30-89 days	$	165,280	$	240,755	$	175,492	$	209,323	$	245,854


Commercial real estate & Real estate construction loans 30-89 days past due Detail:
Farmland	$	123	$	1,338	$	265	$	1,493	$	1,257
Multi-family		6,508		7,669		2,780		4,120		5,168
Owner occupied		24,137		30,043		21,071		28,339		16,072
Non-owner occupied		39,068		42,925		25,913		32,336		39,090

Commercial real estate	$	69,836	$	81,975	$	50,029	$	66,288	$	61,587


1-4 family construction	$	2,313	$	38,555	$	9,530	$	14,668	$	29,753
All other construction		11,492		18,004		29,654		20,498		45,383

Real estate construction	$	13,805	$	56,559	$	39,184	$	35,166	$	75,136


Potential problem loans by type:
Commercial, financial, and agricultural	$	505,903	$	563,836	$	481,034	$	428,550	$	365,069
Commercial real estate		565,969		598,137		588,013		462,103		280,479
Real estate construction		262,572		391,105		462,029		481,467		347,968
Leasing		5,158		8,367		9,572		24,934		2,938

Total commercial		1,339,602		1,561,445		1,540,648		1,397,054		996,454
Home equity		7,446		13,400		15,933		13,626		5,935
Installment		1,103		1,524		1,908		1,043		1,132

Total retail		8,549		14,924		17,841		14,669		7,067
Residential mortgage		19,591		19,150		15,414		14,448		13,030

Total potential problem loans	$	1,367,742	$	1,595,519	$	1,573,903	$	1,426,171	$	1,016,551

Nonperforming Loans and Other Real Estate Owned

Management is committed to an aggressive 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 nonperforming loans and other real estate owned.

Nonperforming loans are considered one indicator of potential loan losses. Nonperforming loans are defined as nonaccrual loans, loans 90 days or more past due but still accruing, and restructured loans. The Corporation specifically excludes from its definition of nonperforming loans student loan balances that are 90 days or more past due and still accruing and that have contractual government guarantees as to collection of principal and interest. The Corporation had approximately $21.4 million, $17.5 million, and $20.6 million of these past due student loans at March 31, 2010, March 31, 2009, and December 31, 2009, respectively.

Nonperforming loans were $1.2 billion at March 31, 2010, compared to $452 million at March 31, 2009 and $1.1 billion at year-end 2009, reflecting the continued impact of the economy on the Corporation’s customers. Loans past due 30-89 days were $165 million at March 31, 2010, a decrease of $81 million from March 31, 2009 and a decrease of $75 million from December 31, 2009. The ratio of nonperforming loans to total loans was 9.10% at March 31, 2010, compared to 2.84% at March 31, 2009 and 7.94% at year-end 2009. The Corporation’s allowance for loan losses to nonperforming loans was 48% at March 31, 2010, compared to 69% at March 31, 2009 and 51% at December 31, 2009.

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The recent market conditions have been marked with general economic and industry declines with pervasive impact on consumer confidence, business and personal financial performance, and commercial and residential real estate markets. The increase in nonperforming loans was primarily due to the impact of declining property values, slower sales, longer holding periods, and rising costs brought on by deteriorating real estate conditions and the weakening economy. As shown in Table 9, total nonperforming loans were up $88 million since year-end 2009, with commercial nonperforming loans up $79 million (primarily in the real estate construction and commercial real estate categories) and consumer-related nonperforming loans were up $9 million. Since March 31, 2009, total nonperforming loans increased $758 million, with commercial nonperforming loans up $697 million and consumer-related nonperforming loans up $61 million. The addition of specific larger commercial credit relationships was the primary cause for the decline in the ratio of the allowance for loan losses to nonperforming loans. The Corporation’s estimate of the appropriate allowance for loan losses does not have a targeted reserve to nonperforming loan coverage ratio. However, management’s allowance methodology at March 31, 2010 and December 31, 2009, including an impairment analysis on specifically identified commercial loans defined by the Corporation as impaired, incorporated the level of specific reserves for these larger commercial credit relationships, as well as other factors, in determining the overall appropriate level of the allowance for loan losses.

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 in nonperforming status; 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 March 31, 2010, potential problem loans totaled $1.4 billion, compared to $1.0 billion at March 31, 2009, and $1.6 billion at December 31, 2009. The $0.2 billion decrease in potential problem loans since December 31, 2009, was primarily due to a $129 million decrease in real estate construction, a $32 million decrease in commercial real estate, and a $58 million decrease in commercial, financial, and agricultural, while the $0.4 billion increase since March 31, 2009 was primarily due to a $285 million increase in commercial real estate and a $141 million increase in commercial, financial, and agricultural. The level of potential problem loans highlights management’s continued heightened level of uncertainty of the pace at which a commercial credit may deteriorate, the duration of asset quality stress, and uncertainty around the magnitude and scope of economic stress that may be felt by the Corporation’s customers and on the underlying real estate values (both residential and commercial).

Other Real Estate Owned: Other real estate owned was $62.2 million at March 31, 2010, compared to $54.9 million at March 31, 2009, and $68.4 million at year-end 2009. The $7.3 million increase in other real estate owned between the March 31 periods was predominantly due to a $9.7 million increase in commercial real estate owned (primarily attributable to 2 larger commercial foreclosures), partially offset by a $2.1 million decrease in residential real estate owned and a $0.3 million decrease to bank premises no longer used for banking and reclassified into other real estate owned. Since year-end 2009, other real estate owned decreased $6.2 million, including a $6.0 million decrease in commercial real estate owned and a $0.2 million decrease in residential real estate owned.

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, repurchase common stock, 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

54

of investment securities, lines of credit with major 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, and is currently exploring options to replace the subordinated note offering which matures in 2011. The Corporation’s capital can be a source of funding and liquidity as well (see section “Capital”). The current volatility and disruptions in the capital markets may impact the Corporation’s ability to access certain liquidity sources in the same manner as the Corporation had in the past.

On January 15, 2010, the Corporation announced it had closed its underwritten public offering of 44.8 million shares of its common stock at $11.15 per share. The net proceeds from the offering were approximately $478.3 million. The Corporation intends to use the net proceeds of this offering to support the Bank, for continued growth, and for working capital and other general corporate purposes.

The Corporation’s internal liquidity management framework includes measurement of several key elements, such as wholesale funding as a percent of total assets and liquid assets to short-term wholesale funding. Strong capital ratios, credit quality, and core earnings are essential to retaining high credit ratings and, consequently, 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. As a result, capital ratios, asset quality measurements, and profitability ratios are monitored on an ongoing basis as part of the liquidity management process. At March 31, 2010, 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 and Standard and Poor’s (“S&P”). Credit ratings by these nationally recognized statistical rating agencies are an important component of the Corporation’s liquidity profile. Credit ratings relate to the Corporation’s ability to issue debt securities and the cost to borrow money, and should not be viewed as an indication of future stock performance or a recommendation to buy, sell, or hold securities. 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 Corporation’s credit rating was downgraded by S&P in January 2010 and was downgraded by Moody’s in February 2010. In addition, on April 28, 2010, S&P placed the Corporation on negative credit watch. The rating agencies continue to have a negative outlook on the banking industry. The primary impact of these credit rating downgrades was that unsecured funding has become severely limited; however, the Corporation has approximately $5 billion in secured borrowing capacity available subsequent to these credit rating downgrades. In order to mitigate the increased liquidity risk associated with these downgrades, the Corporation took steps to proactively increase its cash equivalent levels during the quarter. This was achieved through the approval of a liquidity plan which provides for increasing network transaction accounts and Brokered CDs to fund asset growth, as necessary, as well as a targeted focus on retail deposit retention through competitive pricing. The credit ratings of the Parent Company and its subsidiary bank are displayed below.

March 31, 2010

December 31, 2009

Moody’s

S&P

Fitch

Moody’s

S&P

Fitch

Bank short-term

P2

B

F3

P1

A3

F3

Bank long-term

A3

BB+

BBB-

A1

BBB-

Corporation short-term

P2

B

P1

B

Corporation long-term

Baa1

BB-

BB+

A2

BB+

Subordinated debt long-term

Baa2

B

BB

A3

BB-

BB

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

55

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. In May 2002, $175 million of trust preferred securities were issued, bearing a 7.625% fixed coupon rate. In September 2008, the Parent Company issued $26 million in a subordinated note offering, bearing a 9.25% fixed coupon rate, 5-year no-call provision, and 10-year maturity, while in August 2001, the Parent Company issued $200 million in a subordinated note offering, bearing a 6.75% fixed coupon rate and 10-year maturity. The Parent Company also has a $200 million commercial paper program, of which, no commercial paper was outstanding at March 31, 2010. The availability under the commercial paper program was temporarily suspended due to the S&P downgrade in November 2009 noted above.

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. The allocated carrying value of the Senior Preferred Stock and Common Stock Warrants on the date of issuance (based on their relative fair values) was $507.7 million and $17.3 million, respectively. 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. Prior to the third anniversary of the purchase of the Senior Preferred Stock by the United States Department of the Treasury (“UST”), 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 the Corporation to pay quarterly dividends on its common stock greater than $0.32 per share.

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 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. See section “Capital” for additional discussion related to the MOU.

A bank note program associated with the Bank was established during 2000. Under this program, short-term and long-term debt may be issued. As of March 31, 2010, 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 March 31, 2010. Given the S&P and Moody’s downgrades noted above, the cost to issue funds under the bank note program would be cost prohibitive. The Bank has also established federal funds lines with major banks and the ability to borrow from the Federal Home Loan Bank ($1.0 billion was outstanding at March 31, 2010). 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 March 31, 2010, all investment securities are classified as available for sale and are reported at fair value on the consolidated balance sheet. Of the $5.3 billion investment securities portfolio at March 31, 2010, $1.9 billion was pledged to secure certain deposits or 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.

In addition, the Corporation has $185 million of FHLB and Federal Reserve stock combined, which is “restricted” in nature and less liquid than other tradable equity securities. The FHLB of Chicago announced in October 2007 that it was under a consensual cease and desist order with its regulator, which among other things, restricts various

56

future activities of the FHLB of Chicago. Such restrictions may limit or stop the FHLB from paying dividends or redeeming stock without prior approval. The FHLB of Chicago last paid a dividend in the third quarter of 2007. An investor in FHLB Chicago capital stock should recognize impairment if it concludes that it is not probable that it will ultimately recover the par value of its shares. The decision of whether impairment exists is a matter of judgment that should reflect the investor’s view of FHLB Chicago’s long-term performance, which includes factors such as its operating performance, the severity and duration of declines in the market value of its net assets related to its capital stock amount, its commitment to make payments required by law or regulation and the level of such payments in relation to its operating performance, the impact of legislation and regulatory changes on FHLB Chicago, and accordingly, on the members of FHLB Chicago and its liquidity and funding position. During 2009, the Corporation redeemed $24.9 million of FHLB stock at par. After evaluating all of these considerations, the Corporation believes the cost of the investment will be recovered.

On November 21, 2008, the FDIC approved the final rule to provide short-term liquidity relief under the FDIC’s Temporary Liquidity Guarantee Program (“TLGP”). The TLGP includes the Transaction Account Guarantee (“TAG”) Program, which provides full deposit insurance coverage for certain noninterest-bearing transaction deposit accounts and certain interest-bearing NOW transaction accounts, regardless of dollar amount. On December 5, 2008, the Corporation opted into the TAG Program. On August 26, 2009, the FDIC approved the final rule extending the TAG Program for six months until June 30, 2010, and increased the applicable TAG assessment fees during that six month period. On April 13, 2010, the FDIC approved the issuance of an interim rule, with a 30-day comment period, amending the TAG Program. The proposed interim rule would extend the TAG Program through December 31, 2010, with the possibility of an additional 12-month extension through December 31, 2011, with no increase in the TAG assessment rates. In addition, the proposed interim rule requires TAG assessment reporting based upon average daily account balances and reduces the maximum interest rate for TAG qualifying NOW accounts from 0.50% to 0.25%. The Corporation did not opt out of the TAG Program extension.

For the three months ended March 31, 2010, net cash provided by operating, financing, and investing activities was $94.4 million, $1.1 billion, and $276.6 million, respectively, for a net increase in cash and cash equivalents of $1.5 billion since year-end 2009. During first quarter 2010, loans held for sale increased $193 million, while loans declined $829 million and investment securities decreased $568 million. The $768 million increase in deposits was predominantly used to repay short-term borrowings and long-term funding.

For the three months ended March 31, 2009, net cash provided by operating and financing activities was $171.6 million and $431.3 million, respectively, while investing activities used net cash of $733.9 million, for a net decrease in cash and cash equivalents of $131.0 million since year-end 2008. During first quarter 2009, net assets increased $0.2 billion, primarily in loans held for sale and investment securities. The increases in deposits and long-term funding were predominantly used to fund the asset growth and repay short-term borrowings as well as to provide for the payment of cash dividends to the Corporation’s stockholders.

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.

57

Interest Rate Risk

In order to measure earnings sensitivity to changing rates, the Corporation uses three different measurement tools: static gap analysis, simulation of earnings, and economic value of equity. These three measurement tools represent static (i.e., point-in-time) measures that do not take into account changes in management strategies and market conditions, among other factors.

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 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 March 31, 2010.


	Table 10: Interest Rate Sensitivity Analysis

							Interest Sensitivity Period
	0-90 Days			91-180 Days			181-365 Days			Total Within			1 Year			Over 1 Year		Total
							($ in Thousands)
Earning assets:
Loans held for sale	$	274,003		$	—		$	—		$	274,003			$	—		$	274,003
Investment securities, at fair value		726,736			250,621			462,954			1,440,311				4,011,872			5,452,183
Loans		6,718,125			701,293			1,172,095			8,591,513				4,707,808			13,299,321
Other earning assets		2,017,748			—			—			2,017,748				—			2,017,748

Total earning assets	$	9,736,612		$	951,914		$	1,635,049		$	12,323,575			$	8,719,680		$	21,043,255

Interest-bearing liabilities:
Deposits (1) (2)	$	4,980,410		$	1,928,935		$	3,156,142		$	10,065,487			$	6,689,181		$	16,754,668
Other interest-bearing liabilities (2)		1,023,045			254,696			514,141			1,791,882				1,169,780			2,961,662
Interest rate swap		(200,000	)		—			—			(200,000	)			200,000			—

Total interest-bearing liabilities	$	5,803,455		$	2,183,631		$	3,670,283		$	11,657,369			$	8,058,961		$	19,716,330

Interest sensitivity gap		3,933,157			(1,231,717	)		(2,035,234	)		666,206				660,719			1,326,925
Cumulative interest sensitivity gap		3,933,157			2,701,440			666,206
Cumulative gap as a percentage of earning assets at March 31, 2010		18.7	%		12.8	%		3.2	%


(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 $742 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 March 31, 2010, the 12-month cumulative gap results were within the Corporation’s interest rate risk policy.

At December 31, 2009, the Corporation was in a liability sensitive position, due to increased short-term funding issued to support the increase in the investment portfolio. (Liability sensitive means that liabilities will reprice faster than assets, while asset sensitive means that assets will reprice faster than liabilities. In a rising rate environment, an asset sensitive bank will generally benefit.) At March 31, 2010, the Corporation was in an asset sensitive position, due to the common stock issuance in January 2010 and the implementation of the liquidity plan. For the remainder of 2010, the Corporation’s objective is to remain in an asset sensitive position. However, the interest rate position is at risk to changes in other factors, such as the slope of the yield curve, competitive pricing

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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.

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. In addition to the assumptions used to create the static gap, simulation of earnings included the modeling of 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 March 31, 2010, projected that net interest income would increase by approximately 1.8% if rates rose by a 100 bp shock. At December 31, 2009, the 100 bp shock up was projected to decrease net interest income by approximately 0.3%. As of March 31, 2010, 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 above 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 March 31, 2010, the projected changes for the economic value of equity were within the Corporation’s interest rate risk policy.

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 March 31, 2010, 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 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.

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Table 11 summarizes significant contractual obligations and other commitments at March 31, 2010, 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	$	3,036,128	$	970,229	$	106,809	$	343	$	4,113,509
Short-term borrowings		575,564		—		—		—		575,564
Long-term funding		700,000		699,873		91		244,015		1,643,979
Operating leases		11,587		19,680		12,978		15,845		60,090
Commitments to extend credit		3,221,649		799,607		95,187		61,378		4,177,821

Total	$	7,544,928	$	2,489,389	$	215,065	$	321,581	$	10,570,963

Capital

Stockholders’ equity at March 31, 2010 was $3.2 billion, up $442 million from December 31, 2009. The change in stockholders’ equity between the two periods was primarily attributable to the completion of a common equity offering on January 15, 2010, which resulted in a net increase in stockholders’ equity of $478 million and a 44.8 million increase in the number of common shares outstanding. Cash dividends of $0.01 per share were paid in the first quarter of 2010, compared to $0.32 per share in the first quarter of 2009. At March 31, 2010, stockholders’ equity included $59.7 million of accumulated other comprehensive income compared to $63.4 million of accumulated other comprehensive income at December 31, 2009. 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 $94.0 million at December 31, 2009, to unrealized gains of $90.4 million at March 31, 2010). Stockholders’ equity to assets was 13.76% and 11.97% at March 31, 2010 and December 31, 2009, 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 satisfied a number of the conditions of the MOU and has commenced the steps necessary to resolve any and all remaining matters presented therein. The Bank has also agreed with the OCC that beginning March 31, 2010, until the MOU is no longer in effect, to 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 March 31, 2010, the Bank’s capital ratios were 8.88% and 15.21%, respectively. On April 6, 2010, the Corporation entered into a Memorandum of Understanding (“Memorandum”) with the Federal Reserve Bank of Chicago (“Reserve Bank”), its primary banking regulator. The Memorandum, which was entered into with the Reserve Bank following the 2008-2009 supervisory cycle, is an informal agreement between the Corporation and the Reserve Bank which requires the Corporation to submit for the Reserve Bank’s approval by June 1, 2010, plans to strengthen board and management oversight and risk management and for maintaining sufficient capital incorporating stress scenarios. The Corporation is required to submit reports quarterly of its progress on these items. The Corporation is required to obtain the prior approval of the Reserve Bank for the payment of dividends and to provide prior notification to the Reserve Bank of interest or principal payments on subordinated debt, increases in borrowings or guarantees of debt, or the repurchase of common stock. Management is in the process of addressing the matters in the Memorandum and will be timely reporting the Corporation’s progress to the Reserve Bank.

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

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other capital stock or other equity securities of any kind, other than (i) redemptions, purchases or other 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.

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. For the Corporation’s employee incentive plans, the Board of Directors authorized the repurchase of up to 2.0 million shares per quarter, while under various actions, the Board of Directors authorized the repurchase of shares, not to exceed specified amounts of the Corporation’s outstanding shares per authorization (“block authorizations”). During 2009 and the first three months of 2010, no shares were repurchased under this authorization. At March 31, 2010, approximately 3.9 million shares remain authorized to repurchase under the block authorizations. 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.

The Corporation regularly reviews the adequacy of its capital to ensure that sufficient capital is available for current and future needs and is in compliance with regulatory guidelines. The assessment of overall capital adequacy depends on a variety of factors, including asset quality, liquidity, stability of earnings, changing competitive forces, economic conditions in markets served, and strength of management. The capital ratios of the Corporation and its banking affiliate are greater than minimums required by regulatory guidelines. 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
	March 31, 2010			Dec. 31, 2009			Sept. 30, 2009			June 30, 2009			March 31, 2009
Total stockholders’ equity	$	3,180,509		$	2,738,608		$	2,924,659		$	2,873,768		$	2,897,169
Tier 1 capital		2,366,457			1,918,238			2,103,581			2,098,647			2,115,120
Total capital		2,618,318			2,180,959			2,372,711			2,418,084			2,443,772
Market capitalization		2,378,829			1,407,915			1,460,207			1,598,263			1,975,437

Book value per common share	$	15.44		$	17.42		$	18.88		$	18.49		$	18.68
Tangible book value per common share		9.90			9.93			11.38			10.97			11.15
Cash dividend per common share		0.01			0.05			0.05			0.05			0.32
Stock price at end of period		13.76			11.01			11.42			12.50			15.45
Low closing price for the period		11.48			10.37			9.21			12.50			10.60
High closing price for the period		14.54			13.00			12.67			19.00			21.39

Total stockholders’ equity / assets		13.76	%		11.97	%		12.78	%		11.97	%		11.90	%
Tangible common equity / tangible assets ⁽¹⁾		7.73			5.79			6.64			6.09			6.10
Tangible stockholders’ equity / tangible assets ⁽²⁾		10.04			8.12			8.96			8.30			8.27
Tier 1 common equity / risk-weighted assets ⁽³⁾		11.43			7.85			8.67			8.21			7.91
Tier 1 leverage ratio		10.57			8.76			9.35			9.06			9.06
Tier 1 risk-based capital ratio		16.40			12.52			13.14			12.45			11.93
Total risk-based capital ratio		18.15			14.24			14.83			14.35			13.79

Shares outstanding (period end)		172,880			127,876			127,864			127,861			127,860
Basic shares outstanding (average)		165,842			127,869			127,863			127,861			127,839
Diluted shares outstanding (average)		165,842			127,869			127,863			127,861			127,845


(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 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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Sequential Quarter Results

The Corporation recorded a net loss of $26.4 million for the three months ended March 31, 2010, compared to a net loss of $173.2 million for the three months ended December 31, 2009. Net loss available to common equity was $33.8 million for the three months ended March 31, 2010, or a net loss of $0.20 for both basic and diluted earnings per common share. Comparatively, net loss available to common equity for the three months ended December 31, 2009, was $180.6 million, or a net loss of $1.41 for both basic and diluted earnings per common share (see Table 1).

TABLE 13
Selected Quarterly Information
($ in Thousands)


	For the Quarter Ended
	March 31, 2010			Dec. 31, 2009			Sept. 30, 2009			June 30, 2009			March 31, 2009
Summary of Operations:
Net interest income	$	169,222		$	178,353		$	179,236		$	179,138		$	189,278
Provision for loan losses		165,345			394,789			95,410			155,022			105,424
Noninterest income
Trust service fees		9,356			9,906			9,057			8,569			8,477
Service charges on deposit accounts		26,059			29,213			30,829			29,671			27,205
Card-based and other nondeposit fees		10,820			12,359			11,586			11,858			10,174
Retail commissions		15,817			15,296			15,041			14,829			15,512

Core fee-based revenue		62,052			66,774			66,513			64,927			61,368
Mortgage banking, net		5,407			9,227			(909	)		28,297			4,267
Capital market fees, net		130			291			226			2,393			2,626
BOLI income		3,256			3,310			3,789			3,161			5,772
Asset sale losses, net		(1,641	)		(1,551	)		(126	)		(1,287	)		(1,107	)
Investment securities gains (losses), net		23,581			(395	)		(42	)		(1,385	)		10,596
Other		5,253			7,078			5,858			5,835			5,455

Total noninterest income		98,038			84,734			75,309			101,941			88,977
Noninterest expense
Personnel expense		79,355			72,620			73,501			81,171			77,098
Occupancy		13,175			12,170			11,949			12,341			12,881
Equipment		4,385			4,551			4,575			4,670			4,589
Data processing		7,299			7,728			7,442			8,126			7,597
Business development and advertising		4,445			4,443			3,910			4,943			4,737
Other intangible amortization		1,253			1,386			1,386			1,385			1,386
Legal and professional fees		2,795			6,386			3,349			5,586			4,241
Foreclosure/OREO expense		7,729			10,852			8,688			13,576			5,013
FDIC expense		11,829			9,618			8,451			18,090			5,775
Other		19,594			29,260			17,860			20,143			17,947

Total noninterest expense		151,859			159,014			141,111			170,031			141,264
Income tax expense (benefit)		(23,555	)		(117,479	)		2,030			(26,633	)		(11,158	)

Net income (loss)		(26,389	)		(173,237	)		15,994			(17,341	)		42,725
Preferred stock dividends and discount accretion		7,365			7,354			7,342			7,331			7,321

Net income (loss) available to common equity	$	(33,754	)	$	(180,591	)	$	8,652		$	(24,672	)	$	35,404


Taxable equivalent net interest income	$	175,256		$	184,541		$	185,174		$	185,288		$	195,822
Net interest margin		3.35	%		3.59	%		3.50	%		3.40	%		3.59	%
Effective tax rate (benefit)		(47.16	%)		(40.41	%)		11.26	%		(60.57	%)		(35.35	%)

Average Balances:
Assets	$	23,151,767		$	22,773,576		$	23,362,954		$	24,064,567		$	24,255,783
Earning assets		21,075,408			20,499,225			21,063,016			21,847,267			21,959,077
Interest-bearing liabilities		16,970,884			16,663,947			17,412,341			18,125,389			18,457,879
Loans		13,924,978			14,605,107			15,248,895			16,122,063			16,430,347
Deposits		17,143,924			16,407,034			16,264,181			16,100,686			15,045,976
Wholesale funding		2,837,001			3,332,642			4,067,830			4,876,970			6,098,266
Stockholders’ equity		3,145,074			2,898,132			2,904,210			2,909,700			2,899,603

Taxable equivalent net interest income for the first quarter of 2010 was $175.3 million, $9.3 million lower than the fourth quarter of 2009. Changes in the rate environment and product pricing lowered net interest income by $4.6

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million, while changes in balance sheet volume and mix decreased taxable equivalent net interest income by $3.2 million and two fewer days in the first quarter decreased net interest income by $1.5 million. The Federal funds rate averaged 0.25% for both the first quarter of 2010 and the fourth quarter of 2009. The net interest margin between the sequential quarters was down 24 bp, to 3.35% in the first quarter of 2010, comprised of a 2 bp lower contribution from net free funds (to 0.22%, as lower rates on interest-bearing liabilities decreased the value of noninterest-bearing funds) and a 22 bp lower interest rate spread (to 3.13%, as the rate on interest-bearing liabilities fell 13 bp and the yield on earning assets declined 35 bp). Average earning assets grew $0.6 billion to $21.1 billion in the first quarter of 2010, with average investments up $1.3 billion, while average loans declined $0.7 billion (predominantly in commercial loans). On the funding side, average interest-bearing deposits were up $0.8 billion, while average demand deposits were minimally changed (down $66 million). On average, wholesale funding balances were down $0.5 billion, comprised of a $0.6 billion decrease in short-term borrowings and a $0.1 billion increase in long-term funding.

Provision for loan losses for the first quarter of 2010 was $165.3 million (or $2.0 million greater than net charge offs), compared to $394.8 million (or $161.0 million greater than net charge offs) in the fourth quarter of 2009. Annualized net charge offs represented 4.76% of average loans for the first quarter of 2010 compared to 6.35% for the fourth quarter of 2009. Total nonperforming loans of $1.2 billion (9.10% of total loans) at March 31, 2010 were up from $1.1 billion (7.94% of total loans) at December 31, 2009, with commercial nonperforming loans up $79 million to $1.1 billion, and total consumer-related nonperforming loans up $9 million to $156 million (see Table 9). The allowance for loan losses to loans at March 31, 2010 was 4.33%, compared to 4.06% at year-end 2009. See discussion under sections, “Provision for Loan Losses,” “Allowance for Loan Losses,” and “Nonperforming Loans and Other Real Estate Owned.”

Noninterest income for the first quarter of 2010 increased $13.3 million (15.7%) to $98.0 million versus fourth quarter 2009. Core fee-based revenues of $62.1 million were down $4.7 million (7.1%) versus fourth quarter 2009, primarily due to lower levels of consumer fee-based deposit activity, as overdraft and card-related fees declined $4.2 million. Net mortgage banking decreased $3.8 million from fourth quarter 2009, predominantly due to lower gains on sales and related income. Net investment securities gains of $23.6 million for first quarter 2010 were attributable to gains on the sale of $538 million of mortgage-related securities, while net investment securities losses of $0.4 million for the fourth quarter of 2009 were attributable to credit-related other-than-temporary write-downs. Other income of $5.3 million was $1.8 million lower than fourth quarter 2009, with small declines in various other noninterest income categories.

On a sequential quarter basis, noninterest expense decreased $7.2 million (4.5%) to $151.9 million in the first quarter of 2010. Personnel expense increased $6.7 million (9.3%) over fourth quarter 2009 due to the resetting of payroll tax and incentive accruals, as the full-time equivalent employees were minimally changed (down 0.1%). FDIC expense increased $2.2 million (23.0%) due to the deposit insurance rate increase, as well as a larger assessable deposit base. Legal and professional fees decreased $3.6 million (56.2%) primarily due to lower legal and other professional consultant costs related to corporate projects completed in fourth quarter 2009. Foreclosure/OREO expense decreased $3.1 million (28.8%), attributable to lower foreclosure and other collection costs. Other expense (as shown in Table 13) was down $9.7 million (33.0%) compared to the fourth quarter of 2009, with first quarter 2010 including a $2.5 million early termination penalty on the repayment of $200 million of long-term funding and a $0.4 million increase to the reserve for losses on unfunded commitments, while fourth quarter 2009 included a $10.5 million increase to the reserve for losses on unfunded commitments.

For the first quarter of 2010, the Corporation recognized income tax benefit of $23.6 million, compared to income tax benefit of $117.5 million for the fourth quarter of 2009. The change in income tax was primarily due to the level of pretax loss between the sequential quarters.

Subsequent Events

On April 28, 2010, the Board of Directors declared a $0.01 per common share dividend payable on May 17, 2010, to shareholders of record as of May 7, 2010. 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 March 31, 2010, 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 March 31, 2010. 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.

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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, punitive damages and costs. The Corporation’s response to the complaint is not yet due.

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.

In addition to the above, in the ordinary course of business, the Corporation may be named as defendant in or be party to various pending and threatened legal proceedings. Because the Corporation cannot state with certainty the range of possible outcomes or plaintiffs’ ultimate damage claims, management cannot estimate the timing or specific possible loss or range of loss that may result from these proceedings. Management believes, based upon current knowledge, that liabilities arising out of any such current proceedings will not have a material adverse effect on the consolidated financial statements of the Corporation. However, given the indeterminate amounts sought in certain of these matters and the inherent unpredictability of such matters, no assurances can be made that the results of such proceedings will not have a material adverse effect on the Corporation’s consolidated operating results or cash flows in future periods.

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

Following are the Corporation’s monthly common stock purchases during the first quarter of 2010. 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
					Shares Purchased as		Shares that May Yet
	Total Number of				Part of Publicly		Be Purchased Under
Period	Shares Purchased		Average Price Paid per Share		Announced Plans		the Plan
January 1- January 31, 2010		479	$	10.82		—		—
February 1 - February 28, 2010		62,138		12.81		—		—
March 1 - March 31, 2010		—		—		—		—

Total		62,617	$	12.79		—		—

During the first quarter of 2010, 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 $801,000 in the first quarter of 2010.

ITEM 6. Exhibits

	(a)		Exhibits:

			Exhibit (11), Statement regarding computation of per-share earnings. See Note 4 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.

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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: May 7, 2010	/s/ Philip B. Flynn
	Philip B. Flynn
	President and Chief Executive Officer


Date: May 7, 2010	/s/ Joseph B. Selner
	Joseph B. Selner
	Chief Financial Officer

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