Associated Banc-Corp (ASB) 10-Q 2010 Q3 Quarterly report

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 endedSeptember 30, 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 number001-31343

Associated Banc-Corp

(Exact name of registrant as specified in its charter)

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

1200 Hansen Road, Green Bay, Wisconsin	54304
(Address of principal executive offices)	(Zip Code)

(920) 491-7000

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yesþ Noo

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). Yesþ Noo

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.

Large accelerated filerþ	Accelerated filero	Non-accelerated filero	Smaller reporting companyo
		(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). Yeso Noþ

APPLICABLE ONLY TO CORPORATE ISSUERS:

The number of shares outstanding of registrant’s common stock, par value $0.01 per share, at October 31, 2010, was 173,058,444.

ASSOCIATED BANC-CORP
TABLE OF CONTENTS

		Page No.
PART I. Financial Information
	Item 1. Financial Statements (Unaudited):
	Consolidated Balance Sheets -
	September 30, 2010 and December 31, 2009	3
	Consolidated Statements of Income -
	Three and Nine Months Ended September 30, 2010 and 2009	4
	Consolidated Statements of Changes in Stockholders’ Equity -
	Nine Months Ended September 30, 2010 and 2009	5
	Consolidated Statements of Cash Flows -
	Nine Months Ended September 30, 2010 and 2009	6
	Notes to Consolidated Financial Statements	7
	Item 2. Management’s Discussion and Analysis of
	Financial Condition and Results of Operations	36
	Item 3. Quantitative and Qualitative Disclosures About
	Market Risk	70
	Item 4. Controls and Procedures	70
PART II. Other Information
	Item 1. Legal Proceedings	70
	Item 1A. Risk Factors	70
	Item 2. Unregistered Sales of Equity Securities and
	Use of Proceeds	71
	Item 6. Exhibits	72
Signatures		73
EX-31.1
EX-31.2
EX-32
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

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PART I — FINANCIAL INFORMATION

ITEM 1. Financial Statements:

ASSOCIATED BANC-CORP

Consolidated Balance Sheets

	September 30,			December 31,
	2010			2009
	(Unaudited)
	(In Thousands, except share data)
ASSETS
Cash and due from banks	$	316,914		$	770,816
Interest-bearing deposits in other financial institutions		1,717,853			26,091
Federal funds sold and securities purchased under agreements to resell		503,950			23,785
Investment securities available for sale, at fair value		5,291,336			5,835,533
Federal Home Loan Bank and Federal Reserve Bank stocks, at cost		190,918			181,316
Loans held for sale		274,666			81,238
Loans		12,372,393			14,128,625
Allowance for loan losses		(522,018	)		(573,533	)
Loans, net		11,850,375			13,555,092
Premises and equipment, net		181,236			186,564
Goodwill		929,168			929,168
Other intangible assets, net		84,824			92,807
Other assets		1,184,046			1,191,732
Total assets	$	22,525,286		$	22,874,142
LIABILITIES AND STOCKHOLDERS’ EQUITY
Noninterest-bearing demand deposits	$	3,054,121		$	3,274,973
Interest-bearing deposits, excluding brokered certificates of deposit		13,308,530			13,311,672
Brokered certificates of deposit		442,209			141,968
Total deposits		16,804,860			16,728,613
Short-term borrowings		539,263			1,226,853
Long-term funding		1,713,671			1,953,998
Accrued expenses and other liabilities		266,643			226,070
Total liabilities		19,324,437			20,135,534
Stockholders’ equity
Preferred equity		513,550			511,107
Common stock		1,738			1,284
Surplus		1,569,963			1,082,335
Retained earnings		1,036,800			1,081,156
Accumulated other comprehensive income		78,798			63,432
Treasury stock, at cost		—			(706	)
Total stockholders’ equity		3,200,849			2,738,608
Total liabilities and stockholders’ equity	$	22,525,286		$	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		173,791,598			128,428,814
Common shares authorized (par value $0.01 per share)		250,000,000			250,000,000
Treasury shares of common stock		—			25,251

See accompanying notes to consolidated financial statements.

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ITEM 1. Financial Statements Continued:

ASSOCIATED BANC-CORP

Consolidated Statements of Income

(Unaudited)

	Three Months Ended Sept. 30,						Nine Months Ended Sept. 30,
	2010			2009			2010			2009
				(In Thousands, except per share data)
INTEREST INCOME
Interest and fees on loans	$	148,937		$	183,264		$	462,043		$	579,641
Interest and dividends on investment securities and deposits in other financial institutions:
Taxable		38,433			46,873			128,828			144,464
Tax exempt		8,499			8,498			25,765			26,811
Interest on federal funds sold and securities purchased under agreements to resell		347			16			398			130
Total interest income		196,216			238,651			617,034			751,046
INTEREST EXPENSE
Interest on deposits		25,879			37,811			82,984			129,403
Interest on short-term borrowings		1,849			2,895			5,695			13,137
Interest on long-term funding		14,584			18,709			45,436			60,854
Total interest expense		42,312			59,415			134,115			203,394
NET INTEREST INCOME		153,904			179,236			482,919			547,652
Provision for loan losses		64,000			95,410			327,010			355,856
Net interest income after provision for loan losses		89,904			83,826			155,909			191,796
NONINTEREST INCOME
Trust service fees		9,462			9,057			28,335			26,103
Service charges on deposit accounts		23,845			30,829			76,350			87,705
Card-based and other nondeposit fees		12,093			11,586			34,855			33,618
Retail commission income		15,276			15,041			46,815			45,382
Mortgage banking, net		9,007			(909	)		19,907			31,655
Capital market fees, net		891			226			885			5,245
Bank owned life insurance income		3,756			3,789			11,252			12,722
Asset sale losses, net		(2,354	)		(126	)		(2,518	)		(2,520	)
Investment securities gains (losses), net:
Realized gains, net		5,273			1,058			28,854			11,682
Other-than-temporary impairments		(4,029	)		(2,575	)		(4,175	)		(3,988	)
Less: Non-credit portion recognized in other comprehensive income (before taxes)		2,121			1,475			2,121			1,475
Total investment securities gains (losses), net		3,365			(42	)		26,800			9,169
Other		6,556			5,858			18,145			17,148
Total noninterest income		81,897			75,309			260,826			266,227
NONINTEREST EXPENSE
Personnel expense		80,640			73,501			239,337			231,770
Occupancy		12,157			11,949			37,038			37,171
Equipment		4,637			4,575			13,472			13,834
Data processing		7,502			7,442			22,667			23,165
Business development and advertising		4,297			3,910			13,515			13,590
Other intangible asset amortization expense		1,206			1,386			3,713			4,157
Legal and professional fees		6,774			3,349			15,086			13,176
Foreclosure/OREO expense		7,349			8,688			23,984			27,277
FDIC expense		11,426			8,451			35,282			32,316
Other		20,592			17,860			59,383			55,950
Total noninterest expense		156,580			141,111			463,477			452,406
Income (loss) before income taxes		15,221			18,024			(46,742	)		5,617
Income tax expense (benefit)		917			2,030			(31,878	)		(35,761	)
Net income (loss)		14,304			15,994			(14,864	)		41,378
Preferred stock dividends and discount accretion		7,389			7,342			22,131			21,994
Net income (loss) available to common equity	$	6,915		$	8,652		$	(36,995	)	$	19,384
Earnings (loss) per common share:
Basic	$	0.04		$	0.07		$	(0.22	)	$	0.15
Diluted	$	0.04		$	0.07		$	(0.22	)	$	0.15
Average common shares outstanding:
Basic		172,989			127,863			170,610			127,855
Diluted		172,990			127,863			170,610			127,859

See accompanying notes to consolidated financial statements.

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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
April 1, 2009 adjustment for adoption of accounting standard related to other-than-temporary impairment		—		—		—		9,745			(9,745	)		—			—
Comprehensive income:
Net income		—		—		—		41,378			—			—			41,378
Other comprehensive income		—		—		—		—			74,609			—			74,609
Comprehensive income																	115,987
Common stock issued:
Stock-based compensation plans, net		—		3		1,140		(632	)		—			(495	)		16
Purchase of treasury stock		—		—		—		—			—			(591	)		(591	)
Cash dividends:
Common stock, $0.42 per share		—		—		—		(53,931	)		—			—			(53,931	)
Preferred stock		—		—		—		(19,687	)		—			—			(19,687	)
Accretion of preferred stock discount		2,307		—		—		(2,307	)		—			—			—
Stock-based compensation, net		—		—		6,361		—			—			—			6,361
Tax benefit of stock options		—		—		1		—			—			—			1
Balance, September 30, 2009	$	510,315	$	1,284	$	1,080,720	$	1,268,507		$	64,919		$	(1,086	)	$	2,924,659
Balance, December 31, 2009	$	511,107	$	1,284	$	1,082,335	$	1,081,156		$	63,432		$	(706	)	$	2,738,608
Comprehensive income (loss):
Net loss		—		—		—		(14,864	)		—			—			(14,864	)
Other comprehensive income		—		—		—		—			15,366			—			15,366
Comprehensive income																	502
Common stock issued:
Issuance of common stock		—		448		477,910		—			—			—			478,358
Stock-based compensation plans, net		—		6		2,942		(2,151	)		—			1,519			2,316
Purchase of treasury stock														(813	)		(813	)
Cash dividends:
Common stock, $0.03 per share		—		—		—		(5,210	)		—			—			(5,210	)
Preferred stock		—		—		—		(19,688	)		—			—			(19,688	)
Accretion of preferred stock discount		2,443		—		—		(2,443	)		—			—			—
Stock-based compensation, net		—		—		6,769		—			—			—			6,769
Tax benefit of stock options		—		—		7		—			—			—			7
Balance, September 30, 2010	$	513,550	$	1,738	$	1,569,963	$	1,036,800		$	78,798		$	—		$	3,200,849

See accompanying notes to consolidated financial statements.

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ITEM 1. Financial Statements Continued:

ASSOCIATED BANC-CORP

Consolidated Statements of Cash Flows

(Unaudited)

	For the Nine Months Ended
	September 30,
	2010			2009
	($ in Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	(14,864	)	$	41,378
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Provision for loan losses		327,010			355,856
Depreciation and amortization		22,405			23,075
Addition to valuation allowance on mortgage servicing rights, net		6,052			7,449
Amortization of mortgage servicing rights		16,850			14,060
Amortization of other intangible assets		3,713			4,157
Amortization and accretion on earning assets, funding, and other, net		45,283			40,487
Tax benefit from exercise of stock options		7			1
Gain on sales of investment securities, net and impairment write-downs		(26,800	)		(9,169	)
Loss on sales of assets, net		2,518			2,520
Gain on mortgage banking activities, net		(22,945	)		(36,424	)
Mortgage loans originated and acquired for sale		(1,684,579	)		(3,053,135	)
Proceeds from sales of mortgage loans held for sale		1,642,860			3,063,707
Decrease in interest receivable		5,372			6,967
Decrease in interest payable		(6,422	)		(12,213	)
Net change in other assets and other liabilities		34,453			(341,427	)
Net cash provided by operating activities		350,913			107,289
CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease in loans		901,593			1,235,566
Purchases of:
Investment securities		(1,850,368	)		(2,996,256	)
Premises, equipment, and software, net of disposals		(15,657	)		(13,753	)
Other assets		(2,156	)		(5,914	)
Proceeds from:
Sales of investment securities		963,201			689,689
Calls and maturities of investment securities		1,431,674			1,898,660
Sales of other assets		49,179			43,841
Sales of loans originated for investment		286,330			—
Net cash provided by investing activities		1,763,796			851,833
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits		76,247			1,291,313
Net decrease in short-term borrowings		(687,590	)		(2,186,342	)
Repayment of long-term funding		(640,304	)		(500,102	)
Proceeds from issuance of long-term funding		400,000			400,000
Proceeds from issuance of common stock		478,358			—
Cash dividends on common stock		(5,210	)		(53,931	)
Cash dividends on preferred stock		(19,688	)		(19,687	)
Proceeds from exercise of stock options, net		2,316			16
Purchase of treasury stock		(813	)		(591	)
Net cash used in financing activities		(396,684	)		(1,069,324	)
Net increase (decrease) in cash and cash equivalents		1,718,025			(110,202	)
Cash and cash equivalents at beginning of period		820,692			570,728
Cash and cash equivalents at end of period	$	2,538,717		$	460,526
Supplemental disclosures of cash flow information:
Cash paid for interest	$	140,065		$	215,245
Cash (received) paid for income taxes		(50,351	)		30,813
Loans and bank premises transferred to other real estate owned		37,347			49,401
Capitalized mortgage servicing rights		18,632			37,007

See accompanying notes to consolidated financial statements.

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

In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ significantly from those estimates. Estimates that are particularly susceptible to significant change include the determination of the allowance for loan losses, goodwill impairment assessment, mortgage servicing rights valuation, derivative financial instruments and hedging activities, and income taxes. Management has evaluated subsequent events for potential recognition or disclosure.

NOTE 2: New Accounting Pronouncements Adopted

In 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 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

7

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.

In March 2010, the FASB issued a clarification on the scope exception for embedded credit derivatives. The guidance eliminates the scope exception for bifurcation of embedded credit derivatives in interests in securitized financial assets, unless they are created solely by subordination of one financial debt instrument to another. The guidance is effective beginning in the first reporting periods after June 15, 2010, with earlier adoption permitted for the quarter beginning after March 31, 2010. The Corporation adopted the accounting standard for the period ending September 30, 2010 with no material impact on its results of operations, financial position, and liquidity.

In April 2010, the FASB issued guidance which clarifies the accounting for acquired loans that have evidence of a deterioration in credit quality since origination. In accordance with this guidance, an entity may not apply troubled debt restructuring accounting guidance to individual loans that are part of a pool, even if the modification of those loans would otherwise be considered a troubled debt restructuring. Once a pool is established, individual loans should not be removed from the pool unless the entity sells, forecloses, or writes off the loan. Entities would continue to consider whether the pool of loans is impaired if expected cash flows for the pool change. Loans that are accounted for individually would continue to be subject to the troubled debt restructuring accounting guidance. A one-time election to terminate accounting for loans as a pool, which may be made on a pool-by-pool basis, is provided upon adoption of this guidance. The guidance is effective for reporting periods ending after July 15, 2010. The Corporation adopted the accounting standard for the period ending September 30, 2010 with no material impact on its results of operations, financial position, and liquidity.

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NOTE 3: Earnings Per Share

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

	For the three months ended						For the nine months ended
	September 30,						September 30,
	2010			2009			2010			2009
				(In Thousands, except per share data)
Net income (loss)	$	14,304		$	15,994		$	(14,864	)	$	41,378
Preferred dividends and discount accretion		(7,389	)		(7,342	)		(22,131	)		(21,994	)
Net income (loss) available to common equity	$	6,915		$	8,652		$	(36,995	)	$	19,384
Common shareholder dividends		(1,730	)		(6,393	)		(5,188	)		(53,708	)
Unvested share-based payment awards		(8	)		(26	)		(22	)		(223	)
Undistributed earnings	$	5,177		$	2,233		$	(42,205	)	$	(34,547	)
Basic
Distributed earnings to common shareholders	$	1,730		$	6,393		$	5,188		$	53,708
Undistributed earnings to common shareholders		5,155			2,224			(42,205	)		(34,547	)
Total common shareholders earnings, basic	$	6,885		$	8,617		$	(37,017	)	$	19,161
Diluted
Distributed earnings to common shareholders	$	1,730		$	6,393		$	5,188		$	53,708
Undistributed earnings to common shareholders		5,155			2,224			(42,205	)		(34,547	)
Total common shareholders earnings, diluted	$	6,885		$	8,617		$	(37,017	)	$	19,161
Weighted average common shares outstanding		172,989			127,863			170,610			127,855
Effect of dilutive common stock awards		1			—			—			4
Diluted weighted average common shares outstanding		172,990			127,863			170,610			127,859
Basic earnings (loss) per common share	$	0.04		$	0.07		$	(0.22	)	$	0.15
Diluted earnings (loss) per common share	$	0.04		$	0.07		$	(0.22	)	$	0.15

As a result of the Corporation’s reported net loss for the nine months ended September 30, 2010, all of the stock options outstanding were excluded from the computation of diluted earnings (loss) per common share. Options to purchase approximately 8 million shares were outstanding for the nine months ended September 30, 2009, but excluded from the calculation of diluted earnings per common share as the effect would have been anti-dilutive. For the three months ended September 30, 2010 and 2009, 7 million options to purchase were outstanding, but excluded from the calculation of diluted earnings per common share as the effect would have been anti-dilutive.

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NOTE 4: Stock-Based Compensation

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

	2010			2009
Dividend yield		3.00	%		4.95	%
Risk-free interest rate		2.72	%		1.87	%
Expected volatility		45.30	%		36.00	%
Expected life	6 yrs			6 yrs
Per share fair value of stock options	$	4.58		$	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 nine months ended September 30, 2010, is presented below.

				Weighted Average		Weighted Average Remaining		Aggregate Intrinsic Value
Stock Options	Shares			Exercise Price		Contractual Term		(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		1,290,974			13.20
Exercised		(8,382	)		12.33
Forfeited or expired		(661,222	)		20.94
Outstanding at September 30, 2010		7,329,988		$	24.36		5.25		—
Options exercisable at September 30, 2010		5,299,199		$	27.61		3.90		—

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The following table summarizes information about the Corporation’s nonvested stock option activity for the year ended December 31, 2009, and for the nine months ended September 30, 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		1,290,974			4.58
Vested		(902,764	)		3.95
Forfeited		(254,413	)		3.72
Nonvested at September 30, 2010		2,030,789		$	4.05

For the nine months ended September 30, 2010 and 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 $3.6 million for the first nine months of 2010 and $2.6 million for the year ended December 31, 2009. For the nine months ended September 30, 2010 and 2009, the Corporation recognized compensation expense of $2.6 million and $2.9 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 September 30, 2010, the Corporation had $5.8 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 awards activity (excluding salary shares) for the year ended December 31, 2009, and for the nine months ended September 30, 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		587,011			12.36
Vested		(196,754	)		21.79
Forfeited		(148,313	)		17.26
Outstanding at September 30, 2010		769,075		$	14.02

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 when all funds received under the Capital Purchase Program (“CPP”) have been paid in full. When the CPP funds have been repaid, the shares will vest in 25% increments as the funds are repaid (i.e., 0% vest when less than 25% is repaid, 25% vest when 25-49% is repaid, 50% vest when 50-74% is repaid, 75% vest when 75-99% is repaid, and 100% vest when the full amount is repaid). Expense for restricted stock awards of approximately $4.2 million and $3.5 million was recorded for the nine months ended September 30, 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 $7.1 million of unrecognized compensation costs related to restricted stock awards at September 30, 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 $2.2 million on the granting of 165,048

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salary shares (or an average cost per share of $13.39) for the nine months ended September 30, 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 awards, and the granting of salary shares. The Board of Directors has authorized management to repurchase shares of the Corporation’s common stock each quarter in the market, to be made available for issuance in connection with the Corporation’s employee incentive plans and for other corporate purposes. The repurchase of shares will be based on market opportunities, capital levels, growth prospects, and other investment opportunities, and is subject to restrictions under the CPP.

NOTE 5: Investment Securities

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

			Gross		Gross
			unrealized		unrealized
	Amortized cost		gains		losses			Fair value
	($ in Thousands)
September 30, 2010:
U.S. Treasury securities	$	998	$	12	$	—		$	1,010
Federal agency securities		8,053		81		—			8,134
Obligations of state and political subdivisions (municipal securities)		868,153		38,594		(354	)		906,393
Residential mortgage-related securities		3,975,508		141,260		(3,574	)		4,113,194
Commercial mortgage-related securities		5,359		402		—			5,761
Asset-backed securities (1)		233,255		25		(182	)		233,098
Other securities (debt and equity)		24,321		1,124		(1,699	)		23,746
Total investment securities available for sale	$	5,115,647	$	181,498	$	(5,809	)	$	5,291,336

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

			Gross		Gross
			unrealized		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 September 30, 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	$	83,815	$	84,573
Due after one year through five years		121,132		126,493
Due after five years through ten years		503,284		529,046
Due after ten years		185,312		190,255
Total debt securities		893,543		930,367
Residential mortgage-related securities		3,975,508		4,113,194
Commercial mortgage-related securities		5,359		5,761
Asset-backed securities		233,255		233,098
Equity securities		7,982		8,916
Total investment securities available for sale	$	5,115,647	$	5,291,336

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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 September 30, 2010.

	Less than 12 months					12 months or more					Total
	Unrealized					Unrealized					Unrealized
	Losses			Fair Value		Losses			Fair Value		Losses			Fair Value
						($ in Thousands)
September 30, 2010:
Obligations of state and political subdivisions (municipal securities)	$	(29	)	$	3,252	$	(325	)	$	2,552	$	(354	)	$	5,804
Residential mortgage-related securities		(468	)		107,879		(3,106	)		50,542		(3,574	)		158,421
Asset-backed securities		(182	)		117,627		—			—		(182	)		117,627
Other securities (debt and equity)		(44	)		306		(1,655	)		1,694		(1,699	)		2,000
Total	$	(723	)	$	229,064	$	(5,086	)	$	54,788	$	(5,809	)	$	283,852

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 September 30, 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 September 30, 2010, the number of investment securities in an unrealized loss position for less than 12 months for municipal, residential mortgage-related, and asset-backed securities was 7, 14 and 15, respectively. For investment securities in an unrealized loss position for 12 months or more, the number of individual securities in the municipal and residential mortgage-related categories was 3 and 20, respectively. The unrealized losses reported for residential mortgage-related securities relate to non-agency residential mortgage-related securities as well as residential mortgage-related securities issued by government agencies such as the Federal National Mortgage Association (“FNMA”) and the Federal Home Loan Mortgage Corporation (“FHLMC”). At September 30, 2010, the $1.7 million unrealized loss position on other securities was primarily comprised of 4 individual trust preferred debt securities pools. The Corporation currently does not intend to sell nor does it believe that it is probable it will be required to sell the securities contained in the above unrealized losses table before recovery of their amortized cost basis.

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The following is a summary of the credit loss portion of other-than-temporary impairment recognized in earnings on debt securities for 2009 and the nine months ended September 30, 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	$	(17,026	)	$	(5,027	)	$	(22,053	)
Credit losses on newly identified impairment		(446	)		(2,000	)		(2,446	)
Balance of credit-related other-than-temporary impairment at December 31, 2009	$	(17,472	)	$	(7,027	)	$	(24,499	)
Credit losses on newly identified impairment		(84	)		(1,908	)		(1,992	)
Balance of credit-related other-than-temporary impairment at September 30, 2010	$	(17,556	)	$	(8,935	)	$	(26,491	)

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					Unrealized					Unrealized
	Losses			Fair Value		Losses			Fair Value		Losses			Fair Value
						($ in Thousands)
December 31, 2009:
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 September 30, 2010, the Corporation had FHLB stock of $121.1 million and Federal Reserve Bank stock of $69.8 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.

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NOTE 6: Goodwill and Other Intangible Assets

Goodwill: Goodwill is not amortized but, instead, is subject to impairment tests on at least an annual basis. Consistent with prior years, the Corporation has elected to conduct its annual impairment testing in May. The annual review 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 charge was recorded. During 2009, management completed interim reviews of goodwill and 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 charge 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 September 30, 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 nine months ended September 30, 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 banking segment, while the other intangibles are assigned to the wealth management segment as of September 30, 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
	Nine months ended			Year ended
	September 30, 2010			December 31, 2009
	($ in Thousands)
Core deposit intangibles:
Gross carrying amount(1)	$	41,831		$	47,748
Accumulated amortization		(26,183	)		(29,288	)
Net book value	$	15,648		$	18,460
Amortization during the period	$	2,812		$	4,123
Other intangibles:
Gross carrying amount	$	20,433		$	20,433
Accumulated amortization		(10,740	)		(9,839	)
Net book value	$	9,693		$	10,594
Amortization during the period	$	901		$	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 reserve is reduced through a recovery to earnings. An other-than-temporary impairment (i.e., recoverability is considered remote when considering interest rates and loan pay off activity) is recognized as a write-down of the mortgage servicing rights asset and the related valuation allowance (to the extent a valuation reserve is available) and then against earnings. A direct write-down permanently reduces the carrying value of the mortgage servicing rights asset and valuation allowance, precluding subsequent recoveries. See Note 11, “Commitments, Off-Balance Sheet Arrangements, and Contingent Liabilities,” for a discussion of the recourse provisions on serviced residential mortgage loans. See Note 12, “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 follows.

	At or for the			At or for the
	Nine months ended			Year ended
	September 30, 2010			December 31, 2009
	($ in Thousands)
Mortgage servicing rights:
Mortgage servicing rights at beginning of period	$	80,986		$	56,025
Additions		18,632			44,580
Amortization		(16,850	)		(19,619	)
Mortgage servicing rights at end of period	$	82,768		$	80,986
Valuation allowance at beginning of period		(17,233	)		(10,457	)
(Additions) / Recoveries, net		(6,052	)		(6,776	)
Valuation allowance at end of period		(23,285	)		(17,233	)
Mortgage servicing rights, net	$	59,483		$	63,753
Fair value of mortgage servicing rights	$	59,958		$	66,710
Portfolio of residential mortgage loans serviced for others (“servicing portfolio”)	$	7,860,000		$	7,667,000
Mortgage servicing rights, net to servicing portfolio		0.76	%		0.83	%
Mortgage servicing rights expense(1)	$	22,902		$	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 September 30, 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.

	Core Deposit		Other		Mortgage Servicing
	Intangibles		Intangibles		Rights
	($ in Thousands)
Estimated amortization expense:
Three months ending December 31, 2010	$	900	$	300	$	5,600
Year ending December 31, 2011		3,700		1,000		20,200
Year ending December 31, 2012		3,200		1,000		16,200
Year ending December 31, 2013		3,100		900		12,800
Year ending December 31, 2014		2,900		900		9,900
Year ending December 31, 2015		1,400		800		7,400

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NOTE 7: Long-term Funding

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

	September 30,		December 31,
	2010		2009
	($ in Thousands)
Federal Home Loan Bank advances	$	1,100,540	$	1,010,576
Repurchase agreements		200,000		500,000
Subordinated debt, net		195,389		225,247
Junior subordinated debentures, net		215,903		216,069
Other borrowed funds		1,839		2,106
Total long-term funding	$	1,713,671	$	1,953,998

Federal Home Loan Bank advances: Long-term advances from the Federal Home Loan Bank (“FHLB”) had maturities through 2020 and had weighted-average interest rates of 1.84% at September 30, 2010, compared to 2.22% at December 31, 2009. These advances all had fixed contractual rates at both September 30, 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 September 30, 2010, and 2.60% at December 31, 2009. These repurchase agreements were all fixed rate at September 30, 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%. The Corporation retired $30 million of the August 2001 debt in the third quarter of 2010 and paid an early termination penalty of $0.7 million (included in other noninterest expense on the consolidated statements of income). 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 nine months of 2010. The carrying value of the ASBC Debentures was $179.7 million at both September 30, 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 3.28% at September 30, 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 3.83% at September 30, 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 nine months of 2010. The carrying value of the SFSC Debentures was $36.2 million and $36.4 million at September 30, 2010 and December 31, 2009, respectively.

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NOTE 8: Other Comprehensive Income

A summary of activity in accumulated other comprehensive income follows.

	Nine Months Ended						Year Ended
	Sept. 30,			Sept. 30,			December 31,
	2010			2009			2009
	($ in Thousands)
Net income (loss)	$	(14,864	)	$	41,378		$	(131,859	)
Other comprehensive income (loss), net of tax:
Investment securities available for sale:
Net unrealized gains		49,929			119,752			113,455
Reclassification adjustment for net gains realized in net income		(26,800	)		(9,169	)		(8,774	)
Income tax expense		(8,558	)		(39,873	)		(37,534	)
Other comprehensive income on investment securities available for sale		14,571			70,710			67,147
Defined benefit pension and postretirement obligations:
Prior service cost, net of amortization		349			348			467
Net loss, net of amortization		1,215			233			2,736
Income tax expense		(604	)		(227	)		(1,236	)
Other comprehensive income on pension and postretirement obligations		960			354			1,967
Derivatives used in cash flow hedging relationships:
Net unrealized losses		(4,780	)		(1,071	)		(1,814	)
Reclassification adjustment for net losses and interest expense for interest differential on derivatives realized in net income		4,512			6,994			8,540
Income tax (expense) benefit		103			(2,378	)		(2,718	)
Other comprehensive income (loss) on cash flow hedging relationships		(165	)		3,545			4,008
Total other comprehensive income		15,366			74,609			73,122
Comprehensive income (loss)	$	502		$	115,987		$	(58,737	)

NOTE 9: Income Taxes

For the first nine months of 2010, the Corporation recognized income tax benefit of $31.9 million, compared to income tax benefit of $35.8 million for the first nine months of 2009. The change in income tax was primarily due to the decrease in income before income taxes, as the level of permanent difference items (such as tax-exempt interest and dividends) while relatively consistent between the years, had a proportionately greater impact on the effective tax rate based on lower pre-tax income. In addition, during the first quarter of 2009, the Corporation recorded a $17.0 million 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, while during the second quarter of 2009 the Corporation recorded a $5.0 million decrease in the valuation allowance on deferred tax assets.

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NOTE 10: 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 $103 million of investment securities and cash equivalents as collateral at September 30, 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 12, “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)
September 30, 2010
Interest rate swap – short-term borrowings	$	200,000	$	(7,855	)	Other liabilities		0.20	%		3.15	%	17 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	Reclassified from		Income on	Amount
	Derivatives			AOCI into	AOCI into		Derivatives	Excluded from
	(Effective			Income (Effective	Income (Effective		(Ineffective	Effectiveness
($ in Thousands)	Portion)			Portion)	Portion)		Portion)	Testing)
Nine Months Ended Sept. 30, 2010				Interest Expense			Interest Expense
Interest rate swaps	$	(4,780	)	Short-term borrowings	$	4,512	Short-term borrowings	$	(1	)
Nine Months Ended Sept. 30, 2009				Interest Expense			Interest Expense
Interest rate swaps	$	(1,071	)	Short-term borrowings & Long-term funding	$	6,994	Short-term borrowings & Long-term funding	$	(313	)

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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.

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 hedged 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 nine months of 2010 (which increased interest expense), compared to combined ineffectiveness of $0.3 million for the first nine months of 2009 (which increased 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 September 30, 2010, accumulated other comprehensive income included a deferred after-tax net loss of $4.6 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 September 30, 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)
September 30, 2010
Interest rate-related instruments – customer and mirror	$	1,248,357		72,183		Other assets		1.88	%		1.88	%	41 months
Interest rate-related instruments – customer and mirror		1,248,357		(79,205	)	Other liabilities		1.88	%		1.88	%	41 months
Interest rate lock commitments (mortgage)		384,976		7,145		Other assets		—			—			—
Forward commitments (mortgage)		481,000		(270	)	Other liabilities		—			—			—
Foreign currency exchange forwards		52,410		2,453		Other assets		—			—			—
Foreign currency exchange forwards		49,292		(1,372	)	Other liabilities		—			—			—
December 31, 2009
Interest rate-related instruments – customer and mirror	$	1,228,664	$	49,445		Other assets		2.07	%		2.07	%	44 months
Interest rate–related instruments – customer and mirror		1,228,664		(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)
Nine Months Ended September 30, 2010
Interest rate-related instruments – customer and mirror, net	Capital market fees, net	$	(4,420	)
Interest rate lock commitments (mortgage)	Mortgage banking, net		8,516
Forward commitments (mortgage)	Mortgage banking, net		(4,782	)
Foreign exchange forwards	Capital market fees, net		531
Nine Months Ended September 30, 2009
Interest rate-related instruments – customer and mirror, net	Capital market fees, net	$	216
Interest rate lock commitments (mortgage)	Mortgage banking, net		(2,251	)
Forward commitments (mortgage)	Mortgage banking, net		(562	)
Foreign exchange forwards	Capital market fees, net		120

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Free Standing Derivatives

The Corporation enters into various derivative contracts which are designated as free standing derivative contracts. These derivative contracts are not designated against specific assets and liabilities on the balance sheet or forecasted transactions and, therefore, do not qualify for hedge accounting treatment. Such derivative contracts are carried at fair value on the consolidated balance sheet with changes in the fair value recorded as a component of Capital market fees, net, and typically include interest rate-related instruments (swaps, caps, collars, and corridors). The net impact for the first nine months of 2010 was a $4.4 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 nine months of 2009 was a $0.2 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 September 30, 2010, was a net gain of $6.9 million, comprised of the net gain of $7.1 million on interest rate lock commitments to originate residential mortgage loans held for sale to individual borrowers of approximately $385 million and the net loss of $0.2 million on forward commitments to sell residential mortgage loans to various investors of approximately $481 million. The fair value of the mortgage derivatives 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 September 30, 2009, was a net gain of $1.3 million, comprised of the net gain of $4.4 million on interest rate lock commitments to originate residential mortgage loans held for sale to individual borrowers of approximately $279 million and the net loss of $3.1 million on forward commitments to sell residential mortgage loans to various investors of approximately $362 million.

Foreign currency derivatives

The Corporation provides foreign exchange services to customers. The Corporation may enter into a foreign currency forward to mitigate the exchange rate risk attached to the cash flows of a loan or as an offsetting contract to a forward entered into as a service to our customer. At September 30, 2010, the Corporation had $9 million in notional balances of foreign currency forwards related to loans, and $46 million in notional balances of foreign currency forwards related to customer transactions (with mirror foreign currency forwards of $46 million), which on a combined basis had a fair value of $1.1 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 September 30, 2009, the Corporation had $5 million in notional balances of foreign currency forwards related to loans, and $33 million in notional balances of foreign currency forwards related to customer transactions (with mirror foreign currency forwards of $33 million), which on a combined basis had a fair value of $0.2 million net gain.

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NOTE 11: 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 10). The following is a summary of lending-related and other commitments.

	September 30, 2010		December 31, 2009
	($ in Thousands)
Commitments to extend credit, excluding commitments to originate residential mortgage loans held for sale(1) (2)	$	3,704,491	$	4,095,336
Commercial letters of credit(1)		18,468		19,248
Standby letters of credit(3)		374,963		473,554
Purchase obligations(4)		29,033		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 September 30, 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 10.
(3)	The Corporation has established a liability of $3.9 million and $3.1 million at September 30, 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 obligations of state and political subdivisions at September 30, 2010, and commitments to purchase residential mortgage-related investment securities issued by government agencies at December 31, 2009.

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 September 30, 2010, and December 31, 2009, the Corporation had a reserve for losses on unfunded commitments totaling $16.3 million and $14.2 million, respectively, included in other liabilities on the consolidated balance sheets.

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

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Other Commitments

The Corporation has principal investment commitments to provide capital-based financing to private and public companies through either direct investments in specific companies or through investment funds and partnerships. The timing of future cash requirements to fund such commitments is generally dependent on the investment cycle, whereby privately held companies are funded by private equity investors and ultimately sold, merged, or taken public through an initial offering, which can vary based on overall market conditions, as well as the nature and type of industry in which the companies operate. The Corporation also invests in low-income housing, small-business commercial real estate, new market tax credit projects, and historic tax credit projects to promote the revitalization of low-to-moderate-income neighborhoods throughout the local communities of its bank subsidiary. 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 September 30, 2010 was $40 million, compared to $39 million at December 31, 2009, and was included in other assets on the consolidated balance sheets. Related to these investments, the Corporation has remaining commitments to fund $15 million at September 30, 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 $0.3 million reduction in the reserve for litigation losses and a corresponding reduction in the Visa escrow receivable during 2010. At September 30, 2010, the remaining reserve for unfavorable litigation losses related to Visa was $1.5 million.

In connection with the IPO in 2008, Visa retained a portion of the proceeds to fund an escrow account in order to resolve existing litigation settlements as well as to fund potential future litigation settlements. The Corporation’s initial interest in this escrow account was $2 million (included in other assets in the consolidated balance sheets). During 2009 and 2010, Visa announced it had deposited additional amounts into the litigation escrow account, of which, the Corporation’s pro-rata share was $0.3 million and $0.2 million, respectively. At September 30, 2010, the remaining receivable related to the Visa escrow account was $1.0 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

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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 September 30, 2010 and December 31, 2009, there were approximately $88 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 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 September 30, 2010 and December 31, 2009, there were $0.8 billion and $0.9 billion, respectively, of such residential mortgage loans with credit risk recourse, upon which there have been negligible historical losses to the Corporation.

At September 30, 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 $0.1 million and $0.2 million related to these credit guarantee contracts at September 30, 2010 and December 31, 2009, respectively, recorded in other liabilities on the consolidated balance sheets.

For certain mortgage loans originated by the Corporation, borrowers may be required to obtain Private Mortgage Insurance (PMI) provided by third-party insurers. The Corporation entered into reinsurance treaties with certain PMI carriers which provided, among other things, for a sharing of losses within a specified range of the total PMI coverage in exchange for a portion of the PMI premiums. The Corporation’s reinsurance treaties typically provide that the Corporation will assume liability for losses once they exceed 5% of the aggregate risk exposure up to a maximum of 10% of the aggregate risk exposure. At September 30, 2010, the Corporation’s potential risk exposure was approximately $25 million. As of January 1, 2009, the Corporation discontinued providing reinsurance coverage for new loans in exchange for a portion of the PMI premium. The Corporation’s liability for reinsurance losses, including losses incurred but not yet reported, was $4.2 million and $2.4 million at September 30, 2010 and December 31, 2009, respectively.

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NOTE 12: 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, asset-backed securities, and other debt securities. Lastly, in certain cases where there is limited activity or less transparency around inputs to the estimated fair value, securities are classified within Level 3 of the fair value hierarchy. Level 3 securities primarily include trust preferred securities. To validate the fair value estimates, assumptions, and controls, the Corporation looks to transactions for similar instruments and utilizes independent pricing provided by third-party vendors or brokers and relevant market indices. While none of these sources are solely indicative of fair value, they serve as directional indicators for the

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appropriateness of the Corporation’s fair value estimates. The Corporation has determined that the fair value measures of its investment securities are classified predominantly within Level 1 and 2 of the fair value hierarchy. See Note 5, “Investment Securities,” for additional disclosure regarding the Corporation’s investment securities.

Derivative financial instruments (interest rate-related instruments): The Corporation uses interest rate swaps to manage its interest rate risk. In addition, the Corporation offers customer interest rate swaps, caps, collars, and corridors to service our customers’ needs, for which the Corporation simultaneously enters into offsetting derivative financial instruments (i.e., mirror interest rate swaps, caps, collars, and corridors) with third parties to manage its interest rate risk associated with these financial instruments. The valuation of the Corporation’s derivative financial instruments is determined using discounted cash flow analysis on the expected cash flows of each derivative and, also includes a nonperformance / credit risk component (credit valuation adjustment). See Note 10, “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 September 30, 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 10, “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 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 was based on the Corporation’s existing commitments to sell such loans, while the estimated fair value of the residential mortgage loans held for sale was based on what secondary markets are currently offering for portfolios with similar characteristics, which the Corporation classifies as a Level 2 nonrecurring fair value measurement.

Impaired Loans: The Corporation considers a loan impaired when it is probable that the Corporation will be unable to collect all amounts due according to the contractual terms of the note agreement, including principal and interest. Management has determined that 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 6, “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 September 30, 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
	September 30, 2010		Level 1		Level 2		Level 3
			($ in Thousands)
Assets:
Investment securities available for sale:
U.S. Treasury securities	$	1,010	$	1,010	$	—	$	—
Federal agency securities		8,134		8,134		—		—
Obligations of state and political subdivisions		906,393		—		906,393		—
Residential mortgage-related securities		4,113,194		—		4,113,194		—
Commercial mortgage-related securities		5,761		—		5,761		—
Asset-backed securities		233,098		—		233,098		—
Other securities (debt and equity)		23,746		20,298		986		2,462
Total investment securities available for sale	$	5,291,336	$	29,442	$	5,259,432	$	2,462
Derivatives (other assets)	$	81,781	$	—	$	74,636	$	7,145
Liabilities:
Derivatives (other liabilities)	$	88,702	$	—	$	88,432	$	270

			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 nine months ended September 30, 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
Net transfer in		4,370			—
Total net losses included in income:
Net impairment losses on investment securities		(1,908	)		—
Mortgage derivative gain, net		—			3,734
Balance September 30, 2010	$	2,462		$	6,875

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

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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 September 30, 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 Non-recurring Basis

			Fair Value Measurements Using
	September 30, 2010		Level 1		Level 2		Level 3
	($ in Thousands)
Assets:
Loans held for sale	$	274,666	$	—	$	274,666	$	—
Loans(1)		341,001		—		341,001		—
Mortgage servicing rights		59,483		—		—		59,483

			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, was estimated using appraised values, which the Corporation classifies as a Level 2 nonrecurring fair value measurement. Other real estate owned measured at fair value upon initial recognition totaled approximately $42 million and $51 million for the nine months ended September 30, 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 $6 million, $12 million, and $14 million to noninterest expense for the nine months ended September 30, 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 on the balance sheet at September 30, 2010 and December 31, 2009, were as follows:

	September 30, 2010						December 31, 2009
	Carrying						Carrying
	Amount			Fair Value			Amount			Fair Value
	($ in Thousands)
Financial assets:
Cash and due from banks	$	316,914		$	316,914		$	770,816		$	770,816
Interest-bearing deposits in other financial institutions		1,717,853			1,717,853			26,091			26,091
Federal funds sold and securities purchased under agreements to resell		503,950			503,950			23,785			23,785
Accrued interest receivable		82,076			82,076			87,447			87,447
Interest rate-related agreements (1)		72,183			72,183			49,445			49,445
Foreign currency exchange forwards		2,453			2,453			1,221			1,221
Investment securities available for sale		5,291,336			5,291,336			5,835,533			5,835,533
Federal Home Loan Bank and Federal Reserve Bank stocks		190,918			190,918			181,316			181,316
Loans held for sale		274,666			277,044			81,238			81,238
Loans, net		11,850,375			10,837,448			13,555,092			12,167,223
Bank owned life insurance		529,236			529,236			520,751			520,751
Financial liabilities:
Deposits	$	16,804,860		$	16,804,860		$	16,728,613		$	16,728,613
Accrued interest payable		14,792			14,792			21,214			21,214
Short-term borrowings		539,263			539,263			1,226,853			1,226,853
Long-term funding		1,713,671			1,825,806			1,953,998			2,028,042
Interest rate-related agreements (1)		87,060			87,060			59,635			59,635
Foreign currency exchange forwards		1,372			1,372			671			671
Standby letters of credit (2)		3,878			3,878			3,096			3,096
Interest rate lock commitments to originate residential mortgage loans held for sale		7,145			7,145			(1,371	)		(1,371	)
Forward commitments to sell residential mortgage loans		(270	)		(270	)		4,512			4,512

(1)	At both September 30, 2010 and December 31, 2009, the notional amount of cash flow hedge interest rate swap agreements was $200 million. See Note 10 for information on the fair value of derivative financial instruments.
(2)	The commitment on standby letters of credit was $0.4 billion and $0.5 billion at September 30, 2010 and December 31, 2009, respectively. See Note 11 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— The fair value estimation process for the loans held for sale portfolio is segregated by loan type. The estimated fair value of the student loans held for sale was based on the Corporation’s existing commitments to sell such loans, while the estimated fair value of the residential mortgage loans held for sale was

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based on what secondary markets are currently offering for portfolios with similar characteristics.

Loans, net —The fair value estimation process for the loan portfolio uses an exit price concept and reflects discounts the Corporation believes are consistent with liquidity discounts in the market place. Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as commercial and industrial, real estate construction, commercial real estate, lease financing, residential mortgage, home equity, and other installment. The fair value of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for similar maturities. The fair value analysis also included other assumptions to estimate fair value, intended to approximate those a market participant would use in an orderly transaction, with adjustments for discount rates, interest rates, liquidity, and credit spreads, as appropriate.

Bank owned life insurance— The fair value of bank owned life insurance approximates the carrying amount, because upon liquidation of these investments, the Corporation would receive the cash surrender value which equals the carrying amount.

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

Accrued interest payable and short-term 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

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what the Corporation would receive or pay to terminate the forward delivery contract based on market prices for similar financial instruments), which includes matching specific terms and maturities of the forward commitments against applicable investor pricing available.

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

NOTE 13: Retirement Plans

The Corporation has a noncontributory defined benefit retirement plan (the Retirement Account Plan (“RAP”)) covering substantially all full-time employees. The benefits are based primarily on years of service and the employee’s compensation paid. Employees of acquired entities generally participate in the RAP after consummation of the business combinations. The plans of acquired entities are typically merged into the RAP after completion of the mergers, and credit is usually given to employees for years of service at the acquired institution for vesting and eligibility purposes. The RAP and a smaller acquired plan that was frozen in December 31, 2004, are collectively referred to below as the “Pension Plan.”

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

The components of net periodic benefit cost for the Pension and Postretirement Plans for the three and nine months ended September 30, 2010 and 2009, and for the full year 2009 were as follows.

	Three Months Ended						Nine Months Ended						Year Ended
	September 30,						September 30,						December 31,
	2010			2009			2010			2009			2009
	($ in Thousands)
Components of Net Periodic Benefit Cost
Pension Plan:
Service cost	$	2,475		$	2,100		$	7,425		$	6,300		$	8,649
Interest cost		1,590			1,547			4,770			4,643			6,262
Expected return on plan assets		(3,019	)		(2,885	)		(9,057	)		(8,655	)		(11,520	)
Amortization of prior service cost		18			18			53			52			72
Amortization of actuarial loss		405			90			1,215			270			551
Total net periodic benefit cost	$	1,469		$	870		$	4,406		$	2,610		$	4,014
Postretirement Plan:
Interest cost	$	58		$	66		$	173		$	199		$	261
Amortization of prior service cost		98			99			296			296			395
Amortization of actuarial gain		—			(13	)		—			(37	)		(54	)
Total net periodic benefit cost	$	156		$	152		$	469		$	458		$	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 14: 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, 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.

				Wealth
	Banking			Management			Other			Consolidated Total
	($ in Thousands)
As of and for the nine months ended September 30, 2010
Net interest income	$	482,359		$	560		$	—		$	482,919
Provision for loan losses		327,010			—			—			327,010
Noninterest income		205,915			74,999			(3,238	)		277,676
Depreciation and amortization		42,038			930			—			42,968
Other noninterest expense		379,987			60,610			(3,238	)		437,359
Income tax expense (benefit)		(37,486	)		5,608			—			(31,878	)
Net income (loss)	$	(23,275	)	$	8,411		$	—		$	(14,864	)
% of consolidated net income (loss)		N/M			N/M			N/M			N/M
Total assets	$	22,469,240		$	137,673		$	(81,627	)	$	22,525,286
% of consolidated total assets		100	%		—	%		—	%		100	%
Total revenues *	$	688,274		$	75,559		$	(3,238	)	$	760,595
% of consolidated total revenues		90	%		10	%		—	%		100	%
As of and for the nine months ended September 30, 2009
Net interest income	$	547,028		$	624		$	—		$	547,652
Provision for loan losses		355,856			—			—			355,856
Noninterest income		211,818			71,649			(3,180	)		280,287
Depreciation and amortization		40,304			988			—			41,292
Other noninterest expense		368,469			59,885			(3,180	)		425,174
Income tax expense (benefit)		(40,321	)		4,560			—			(35,761	)
Net income	$	34,538		$	6,840		$	—		$	41,378
% of consolidated net income		83	%		17	%		—	%		100	%
Total assets	$	22,823,731		$	125,384		$	(67,588	)	$	22,881,527
% of consolidated total assets		100	%		—	%		—	%		100	%
Total revenues *	$	758,846		$	72,273		$	(3,180	)	$	827,939
% of consolidated total revenues		92	%		8	%		—	%		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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				Wealth
	Banking			Management			Other			Consolidated Total
	($ in Thousands)
As of and for the three months ended September 30, 2010
Net interest income	$	153,728		$	176		$	—		$	153,904
Provision for loan losses		64,000			—			—			64,000
Noninterest income		63,823			24,899			(1,080	)		87,642
Depreciation and amortization		14,066			306			—			14,372
Other noninterest expense		129,336			19,697			(1,080	)		147,953
Income tax expense (benefit)		(1,112	)		2,029			—			917
Net income	$	11,261		$	3,043		$	—		$	14,304
% of consolidated net income		79	%		21	%		—			100	%
Total assets	$	22,469,240		$	137,673		$	(81,627	)	$	22,525,286
% of consolidated total assets		100	%		—	%		—	%		100	%
Total revenues *	$	217,551		$	25,075		$	(1,080	)	$	241,546
% of consolidated total revenues		90	%		10	%		—	%		100	%
As of and for the three months ended September 30, 2009
Net interest income	$	179,042		$	194		$	—		$	179,236
Provision for loan losses		95,410			—			—			95,410
Noninterest income		57,668			24,008			(1,060	)		80,616
Depreciation and amortization		13,982			325			—			14,307
Other noninterest expense		113,703			19,468			(1,060	)		132,111
Income tax expense		266			1,764			—			2,030
Net income	$	13,349		$	2,645		$	—		$	15,994
% of consolidated net income		83	%		17	%		—	%		100	%
Total assets	$	22,823,731		$	125,384		$	(67,588	)	$	22,881,527
% of consolidated total assets		100	%		—	%		—	%		100	%
Total revenues *	$	236,710		$	24,202		$	(1,060	)	$	259,852
% of consolidated total revenues		91	%		9	%		—	%		100	%

* 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 related 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. The impairment testing process is conducted by assigning net assets and goodwill to each reporting unit. The fair value of each reporting unit is compared to the recorded book value, “step one”. If the fair value of the reporting unit exceeds its carrying value, goodwill is not considered impaired and “step two” is not considered necessary. If the carrying value of a reporting unit exceeds its fair value, the impairment test continues (“step two”) by comparing the carrying value of the reporting unit’s goodwill to the implied fair value of goodwill. The implied fair value is computed by adjusting all assets and liabilities of the reporting unit to current fair value with the offset adjustment to goodwill. The adjusted goodwill balance is the implied fair value of the goodwill. An impairment charge is recognized if the carrying fair value of goodwill exceeds the implied fair value of goodwill.

The Corporation conducted its annual impairment testing in May 2010 and May 2009. In addition, 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. The Corporation engaged an independent valuation firm to assist in the computation of the fair value estimates of each reporting unit as part of its impairment assessment. The valuation utilized market and income approach methodologies and applied a weighted average to each in order to determine the fair value of each reporting unit. Goodwill impairment testing is considered a “critical accounting estimate” as estimates and assumptions are made about future performance and cash flows, as well as other prevailing market factors. In the event that we conclude that all or a portion of our goodwill may be impaired, a noncash charge for the amount of such impairment would be recorded in earnings. Such a charge would have no impact on tangible capital. A decline in our stock price or occurrence of a triggering event following any of our quarterly earnings releases and prior to the filing of the periodic report for that period could, under certain circumstances, cause us to re-perform a goodwill impairment test and result in an impairment charge being recorded for that period which was not reflected in such earnings release.

In connection with obtaining an independent third party valuation, management provides certain information and assumptions that is utilized in the implied fair value calculation. Assumptions critical to the process include discount rates, asset and liability growth rates, and other income and expense estimates. The Corporation

37

provided the best information currently available to estimate future performance for each reporting unit; however, future adjustments to these projections may be necessary if conditions differ substantially from the assumptions utilized in making these assumptions. See also Note 6, “Goodwill and Other Intangible Assets, of the notes to consolidated financial statements.

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 September 30, 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 $7.9 million (or 13%) lower, while if prepayment speeds were to decrease 25%, the estimated value of the mortgage servicing rights asset would have been approximately $8.6 million (or 14%) higher. The Corporation believes the mortgage servicing rights asset is properly recorded in the consolidated financial statements. See Note 6, “Goodwill and Other Intangible Assets,” and Note 12, “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

38

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 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 10, “Derivative and Hedging Activities,” and Note 12, “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 September 30, 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 9, “Income Taxes,” of the notes to consolidated financial statements and section “Income Taxes.”

Segment Review

As described in Note 14, “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 14, “Segment Reporting,” of the notes to consolidated financial statements, indicates that the banking segment represents 90% of total revenues (as defined in the Note) for the first nine months 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 14, “Segment Reporting,” of the notes to consolidated financial statements) was 10% and 8%, respectively, for the comparable nine month periods in 2010 and 2009. Wealth management segment revenues were up $3.3 million (5%) and expenses were up $0.7 million (1%) between the comparable nine month periods of 2010 and 2009. Wealth segment assets (which consist predominantly of cash equivalents, investments, customer receivables, goodwill and intangibles) were up $12 million (10%) between September 30, 2010 and September 30, 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 (63% of total segment noninterest expense for both the first nine months 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.”

39

Results of Operations — Summary

The Corporation recorded a net loss of $14.9 million for the nine months ended September 30, 2010, compared to net income of $41.4 million for the nine months ended September 30, 2009. Net loss available to common equity was $37.0 million for the nine months ended September 30, 2010, or a net loss of $0.22 for both basic and diluted earnings per common share. Comparatively, net income available to common equity for the nine months ended September 30, 2009, was $19.4 million, or net income of $0.15 for both basic and diluted earnings per common share. The net interest margin for the first nine months of 2010 was 3.22% compared to 3.50% for the first nine months of 2009.

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

	3rd Qtr.			2nd Qtr.			1st Qtr.			4th Qtr.			3rd Qtr.
	2010			2010			2010			2009			2009
Net income (loss) (Quarter)	$	14,304		$	(2,779	)	$	(26,389	)	$	(173,237	)	$	15,994
Net income (loss) (Year-to-date)		(14,864	)		(29,168	)		(26,389	)		(131,859	)		41,378
Net income (loss) available to common equity (Quarter)	$	6,915		$	(10,156	)	$	(33,754	)	$	(180,591	)	$	8,652
Net income (loss) available to common equity (Year-to-date)		(36,995	)		(43,910	)		(33,754	)		(161,207	)		19,384
Earnings (loss) per common share — basic (Quarter)	$	0.04		$	(0.06	)	$	(0.20	)	$	(1.41	)	$	0.07
Earnings (loss) per common share — basic (Year-to-date)		(0.22	)		(0.26	)		(0.20	)		(1.26	)		0.15
Earnings (loss) per common share — diluted (Quarter)	$	0.04		$	(0.06	)	$	(0.20	)	$	(1.41	)	$	0.07
Earnings (loss) per common share — diluted (Year-to-date)		(0.22	)		(0.26	)		(0.20	)		(1.26	)		0.15
Return on average assets (Quarter)		0.25	%		(0.05	)%		(0.46	)%		(3.02	)%		0.27	%
Return on average assets (Year-to-date)		(0.09	)		(0.26	)		(0.46	)		(0.56	)		0.23
Return on average equity (Quarter)		1.77	%		(0.35	)%		(3.40	)%		(23.72	)%		2.18	%
Return on average equity (Year-to-date)		(0.63	)		(1.86	)		(3.40	)		(4.54	)		1.90
Return on average common equity (Quarter)		1.02	%		(1.52	)%		(5.20	)%		(30.01	)%		1.43	%
Return on average common equity (Year-to-date)		(1.85	)		(3.34	)		(5.20	)		(6.74	)		1.08
Return on average tangible common equity (Quarter)(1)		1.58	%		(2.37	)%		(8.17	)%		(50.16	)%		2.39	%
Return on average tangible common equity (Year-to-date)(1)		(2.89	)		(5.22	)		(8.17	)		(11.25	)		1.81
Efficiency ratio (Quarter)(2)		67.36	%		64.38	%		62.32	%		60.35	%		55.43	%
Efficiency ratio (Year-to-date)(2)		64.65			63.34			62.32			57.24			56.22
Efficiency ratio, fully taxable equivalent (Quarter)(2)		65.05	%		63.20	%		60.42	%		58.63	%		54.14	%
Efficiency ratio, fully taxable equivalent (Year-to-date)(2)		62.85			61.79			60.42			55.73			54.78
Net interest margin (Quarter)		3.08	%		3.22	%		3.35	%		3.59	%		3.50	%
Net interest margin (Year-to-date)		3.22			3.29			3.35			3.52			3.50

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

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TABLE 1A
Reconciliation of Non-GAAP Measure

	3rd Qtr.			2nd Qtr.			1st Qtr.			4th Qtr.			3rd Qtr.
	2010			2010			2010			2009			2009
Efficiency ratio (Quarter)(a)		67.36	%		64.38	%		62.32	%		60.35	%		55.43	%
Taxable equivalent adjustment (Quarter)		(1.68	)		(1.56	)		(1.51	)		(1.39	)		(1.27	)
Asset sale gains / losses, net (Quarter)		(0.63	)		0.38			(0.39	)		(0.33	)		(0.02	)
Efficiency ratio, fully taxable equivalent (Quarter)(b)		65.05	%		63.20	%		60.42	%		58.63	%		54.14	%
Efficiency ratio (Year-to-date)(a)		64.65	%		63.34	%		62.32	%		57.24	%		56.22	%
Taxable equivalent adjustment (Year-to-date)		(1.58	)		(1.54	)		(1.51	)		(1.30	)		(1.28	)
Asset sale gains / losses, net (Year-to-date)		(0.22	)		(0.01	)		(0.39	)		(0.21	)		(0.16	)
Efficiency ratio, fully taxable equivalent (Year-to-date)(b)		62.85	%		61.79	%		60.42	%		55.73	%		54.78	%

(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 nine months ended September 30, 2010, was $500.8 million, a decrease of $65.5 million or 11.6% versus the comparable period last year. As indicated in Tables 2 and 3, the decrease in taxable equivalent net interest income was attributable to unfavorable volume variances (as changes in the balances and mix of earning assets and interest-bearing liabilities lowered taxable equivalent net interest income by $34.3 million) and unfavorable rate variances (as the impact of changes in the interest rate environment and product pricing reduced taxable equivalent net interest income by $31.2 million).

The net interest margin for the first nine months of 2010 was 3.22%, 28 bp lower than 3.50% for the same period in 2009. This comparable period decrease was a function of a 24 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 24 bp reduction in interest rate spread was the net result of a 67 bp decrease in the yield on earning assets and a 43 bp decrease in the cost of interest-bearing liabilities, and was primarily attributable to an increase in the Corporation’s liquidity position (resulting in a 24 bp reduction in net interest margin during the first nine months of 2010).

While the Federal Reserve left interest rates unchanged during 2009 and the first nine months of 2010 (resulting in a level Federal funds rate of 0.25% for both 2010 and 2009), the LIBOR rates have declined (the average 3-month LIBOR rate was 0.83% for the first nine months of 2009 compared to an average 3-month LIBOR rate of 0.36% for the first nine months of 2010). 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 continued pressure on net interest margin for the remainder of 2010.

The yield on earning assets was 4.08% for the first nine months of 2010, 67 bp lower than the comparable period last year. The yield on securities and short-term investments decreased 131 bp (to 3.08%), impacted by the Corporation’s strong liquidity position (to mitigate the liquidity risk associated with the Corporation’s credit rating downgrade, discussed further in Section, “Liquidity”), the lower interest rate environment, and prepayment speeds of mortgage-related securities purchased at a premium. Loan yields were down 24 bp, (to 4.64%), due to the higher levels of average 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 1.08% for the first nine months of 2010 was 43 bp lower than the same period in 2009. Rates on interest-bearing deposits were down 54 bp (to 0.79%, reflecting the lower rate environment, yet moderated by product-focused pricing to retain balances), while the cost of wholesale funding increased 76 bp (to 2.73%). The cost of short-term borrowings was up 56 bp (primarily attributable to the lower levels of short-term borrowings and the cash flow hedges holding the interest rate on $200 million of short-term borrowings at 3.15%, see Note 10, Derivative and Hedging Activities,” of the notes to consolidated financial statements for additional

41

information on the cash flow hedge instruments), while the cost of long-term funding declined 99 bp (primarily attributable to maturities of higher cost long-term funding).

Average earning assets were $20.8 billion for the first nine months of 2010, a decrease of $0.8 billion or 3.9% from the comparable period last year. Average loans declined $2.5 billion, including decreases in both commercial loans (down $1.9 billion) and consumer-related loans (down $0.6 billion). Investment securities and short-term investments increased $1.7 billion, reflecting the Corporation’s increased liquidity position.

Average interest-bearing liabilities of $16.6 billion for the first nine months of 2010 were $1.4 billion or 7.8% lower than the comparable period of 2009. On average, interest-bearing deposits grew $1.1 billion (primarily attributable to $0.9 billion higher network transaction deposits), while noninterest-bearing demand deposits (a principal component of net free funds) were up $0.2 billion. Average wholesale funding balances decreased $2.5 billion between the comparable September periods, primarily attributable to lower short-term borrowings as average long-term funding was relatively unchanged at $1.8 billion (down $60 million). As a percentage of total average interest-bearing liabilities, wholesale funding decreased from 27.8% in the first nine months of 2009 to 15.1% in the first nine months of 2010.

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TABLE 2
Net Interest Income Analysis
($ in Thousands)

	Nine months ended Sept. 30, 2010							Nine months ended Sept. 30, 2009
			Interest		Average					Interest		Average
	Average		Income/		Yield/			Average		Income/		Yield/
	Balance		Expense		Rate			Balance		Expense		Rate
Earning assets:
Loans:(1) (2) (3)
Commercial	$	8,002,403	$	258,475		4.32	%	$	9,887,868	$	334,930		4.53	%
Residential mortgage		2,006,806		74,277		4.94			2,457,663		98,159		5.33
Retail		3,379,368		131,747		5.21			3,583,909		149,098		5.56
Total loans		13,388,577		464,499		4.64			15,929,440		582,187		4.88
Investment securities		5,574,111		166,840		3.99			5,640,595		187,142		4.42
Other short-term investments		1,813,973		3,609		0.27			49,803		349		0.94
Investments and other(1)		7,388,084		170,449		3.08			5,690,398		187,491		4.39
Total earning assets		20,776,661		634,948		4.08			21,619,838		769,678		4.75
Other assets, net		2,047,577							2,271,326
Total assets	$	22,824,238						$	23,891,164
Interest-bearing liabilities:
Interest-bearing deposits:
Savings deposits	$	894,445	$	857		0.13	%	$	884,098	$	1,034		0.16	%
Interest-bearing demand deposits		2,796,295		4,968		0.24			2,002,929		3,164		0.21
Money market deposits		6,490,856		26,215		0.54			5,300,646		34,516		0.87
Time deposits, excluding Brokered CDs		3,317,251		47,294		1.91			3,951,577		82,275		2.78
Total interest-bearing deposits, excluding Brokered CDs		13,498,847		79,334		0.79			12,139,250		120,989		1.33
Brokered CDs		584,153		3,650		0.84			848,538		8,414		1.33
Total interest-bearing deposits		14,083,000		82,984		0.79			12,987,788		129,403		1.33
Wholesale funding		2,500,326		51,131		2.73			5,006,918		73,991		1.97
Total interest-bearing liabilities		16,583,326		134,115		1.08			17,994,706		203,394		1.51
Noninterest-bearing demand deposits		3,029,719							2,820,289
Other liabilities		31,693							171,648
Stockholders’ equity		3,179,500							2,904,521
Total liabilities and equity	$	22,824,238						$	23,891,164
Interest rate spread						3.00	%						3.24	%
Net free funds						0.22							0.26
Net interest income, taxable equivalent, and net interest margin			$	500,833		3.22	%			$	566,284		3.50	%
Taxable equivalent adjustment				17,914							18,632
Net interest income			$	482,919						$	547,652

(1)	The yield on tax exempt loans and securities is computed on a taxable equivalent basis using a tax rate of 35% for all periods presented and is net of the effects of certain disallowed interest deductions.
(2)	Nonaccrual loans and loans held for sale have been included in the average balances.
(3)	Interest income includes net loan fees.

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TABLE 2
Net Interest Income Analysis
($ in Thousands)

	Three months ended Sept. 30, 2010							Three months ended Sept. 30, 2009
			Interest		Average					Interest		Average
	Average		Income/		Yield/			Average		Income/		Yield/
	Balance		Expense		Rate			Balance		Expense		Rate
Earning assets:
Loans:(1) (2) (3)
Commercial	$	7,502,980	$	82,606		4.37	%	$	9,503,565	$	106,506		4.45	%
Residential mortgage		2,004,284		24,025		4.78			2,270,025		29,928		5.26
Retail		3,348,527		43,121		5.12			3,475,305		47,670		5.46
Total loans		12,855,791		149,752		4.63			15,248,895		184,104		4.80
Investment securities		5,452,490		50,795		3.73			5,772,358		60,406		4.19
Other short-term investments		2,352,217		1,583		0.27			41,763		79		0.76
Investments and other(1)		7,804,707		52,378		2.69			5,814,121		60,485		4.16
Total earning assets		20,660,498		202,130		3.90			21,063,016		244,589		4.62
Other assets, net		2,066,710							2,299,938
Total assets	$	22,727,208						$	23,362,954
Interest-bearing liabilities:
Interest-bearing deposits:
Savings deposits	$	910,970	$	316		0.14	%	$	887,176	$	353		0.16	%
Interest-bearing demand deposits		2,637,952		1,292		0.19			2,330,976		1,298		0.22
Money market deposits		6,824,352		9,216		0.54			5,540,272		10,538		0.75
Time deposits, excluding Brokered CDs		3,197,087		13,805		1.71			3,847,942		23,998		2.47
Total interest-bearing deposits, excluding Brokered CDs		13,570,361		24,629		0.72			12,606,366		36,187		1.14
Brokered CDs		480,074		1,250		1.03			738,145		1,624		0.87
Total interest-bearing deposits		14,050,435		25,879		0.73			13,344,511		37,811		1.12
Wholesale funding		2,326,469		16,433		2.81			4,067,830		21,604		2.11
Total interest-bearing liabilities		16,376,904		42,312		1.03			17,412,341		59,415		1.36
Noninterest-bearing demand deposits		3,087,670							2,919,670
Other liabilities		55,892							126,733
Stockholders’ equity		3,206,742							2,904,210
Total liabilities and equity	$	22,727,208						$	23,362,954
Interest rate spread						2.87	%						3.26	%
Net free funds						0.21							0.24
Net interest income, taxable equivalent, and net interest margin			$	159,818		3.08	%			$	185,174		3.50	%
Taxable equivalent adjustment				5,914							5,938
Net interest income			$	153,904						$	179,236

(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.

44

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

	Comparison of									Comparison of
	Nine months ended Sept. 30, 2010 vs. 2009									Three months ended Sept. 30, 2010 vs. 2009
				Variance Attributable to									Variance Attributable to
	Income/Expense									Income/Expense
	Variance (1)			Volume			Rate			Variance (1)			Volume			Rate
INTEREST INCOME: (2)
Loans:
Commercial	$	(76,455	)	$	(61,476	)	$	(14,979	)	$	(23,900	)	$	(22,064	)	$	(1,836	)
Residential mortgage		(23,882	)		(17,064	)		(6,818	)		(5,903	)		(3,327	)		(2,576	)
Retail		(17,351	)		(8,253	)		(9,098	)		(4,549	)		(1,699	)		(2,850	)
Total loans		(117,688	)		(86,793	)		(30,895	)		(34,352	)		(27,090	)		(7,262	)
Investment securities		(20,302	)		(2,183	)		(18,119	)		(9,611	)		(3,224	)		(6,387	)
Other short-term investments		3,260			3,688			(428	)		1,504			1,589			(85	)
Investments and other		(17,042	)		1,505			(18,547	)		(8,107	)		(1,635	)		(6,472	)
Total interest income		(134,730	)		(85,288	)		(49,442	)		(42,459	)		(28,725	)		(13,734	)
INTEREST EXPENSE:
Interest-bearing deposits:
Savings deposits	$	(177	)	$	12		$	(189	)	$	(37	)	$	9		$	(46	)
Interest-bearing demand deposits		1,804			1,372			432			(6	)		160			(166	)
Money market deposits		(8,301	)		6,656			(14,957	)		(1,322	)		2,128			(3,450	)
Time deposits, excluding brokered CDs		(34,981	)		(11,802	)		(23,179	)		(10,193	)		(3,616	)		(6,577	)
Interest-bearing deposits, excluding Brokered CDs		(41,655	)		(3,762	)		(37,893	)		(11,558	)		(1,319	)		(10,239	)
Brokered CDs		(4,764	)		(2,178	)		(2,586	)		(374	)		(636	)		262
Total interest-bearing deposits		(46,419	)		(5,940	)		(40,479	)		(11,932	)		(1,955	)		(9,977	)
Wholesale funding		(22,860	)		(45,045	)		22,185			(5,171	)		(11,007	)		5,836
Total interest expense		(69,279	)		(50,985	)		(18,294	)		(17,103	)		(12,962	)		(4,141	)
Net interest income, taxable equivalent	$	(65,451	)	$	(34,303	)	$	(31,148	)	$	(25,356	)	$	(15,763	)	$	(9,593	)

(1)	The change in interest due to both rate and volume has been allocated proportionately to volume variance and rate variance based on the relationship of the absolute dollar change in each.
(2)	The yield on tax exempt loans and securities is computed on a taxable equivalent basis using a tax rate of 35% for all periods presented.

Provision for Loan Losses

The provision for loan losses for the first nine months of 2010 was $327.0 million, compared to $355.9 million for the first nine months of 2009 and $750.6 million for the full year 2009, respectively. Net charge offs were $378.5 million for the first nine months of 2010, compared to $208.7 million for the first nine months of 2009 and $442.5 million for the full year 2009. Annualized net charge offs as a percent of average loans for the first nine months of 2010 were 3.78%, compared to 1.75% for the first nine months of 2009 and 2.84% for the full year 2009. At September 30, 2010, the allowance for loan losses was $522.0 million, up from $412.5 million at September 30, 2009, and down from $573.5 million at December 31, 2009. The ratio of the allowance for loan losses to total loans was 4.22%, compared to 2.79% at September 30, 2009 and 4.06% at December 31, 2009. Nonperforming loans at September 30, 2010, were $817 million, compared to $886 million at September 30, 2009, and $1.1 billion at December 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 level of loans sold or transferred to held for sale, the risk inherent in specific loans, concentrations of loans to specific borrowers or industries, existing economic conditions, the fair value of underlying collateral, and other factors

45

which could affect potential credit losses. See additional discussion under sections “Allowance for Loan Losses,” and “Nonperforming Loans and Other Real Estate Owned.”

Noninterest Income

Noninterest income for the first nine months of 2010 was $260.8 million, down $5.4 million (2.0%) from the first nine months of 2009. Core fee-based revenue (as defined in Table 4 below) was $186.4 million, down $6.5 million from the comparable period last year. Net mortgage banking income was $19.9 million compared to $31.7 million for the first nine months of 2009. Net gains / losses on investment securities and asset sales combined were $24.3 million, a favorable change of $17.6 million versus the comparable period in 2009. All other noninterest income categories combined were $30.3 million, down $4.8 million versus the comparable period last year.

TABLE 4
Noninterest Income
($ in Thousands)

	3rd Qtr.			3rd Qtr.			Dollar			Percent			YTD			YTD			Dollar			Percent
	2010			2009			Change			Change			2010			2009			Change			Change
Trust service fees	$	9,462		$	9,057		$	405			4.5	%	$	28,335		$	26,103		$	2,232			8.6	%
Service charges on deposit accounts		23,845			30,829			(6,984	)		(22.7	)		76,350			87,705			(11,355	)		(12.9	)
Card-based and other nondeposit fees		12,093			11,586			507			4.4			34,855			33,618			1,237			3.7
Retail commissions		15,276			15,041			235			1.6			46,815			45,382			1,433			3.2
Core fee-based revenue		60,676			66,513			(5,837	)		(8.8	)		186,355			192,808			(6,453	)		(3.3	)
Mortgage banking income		23,502			9,148			14,354			156.9			42,809			53,164			(10,355	)		(19.5	)
Mortgage servicing rights expense		14,495			10,057			4,438			44.1			22,902			21,509			1,393			6.5
Mortgage banking, net		9,007			(909	)		9,916			N/M			19,907			31,655			(11,748	)		(37.1	)
Capital market fees, net		891			226			665			294.2			885			5,245			(4,360	)		(83.1	)
Bank owned life insurance (“BOLI”) income		3,756			3,789			(33	)		(0.9	)		11,252			12,722			(1,470	)		(11.6	)
Other		6,556			5,858			698			11.9			18,145			17,148			997			5.8
Subtotal (“fee income”)		80,886			75,477			5,409			7.2			236,544			259,578			(23,034	)		(8.9	)
Asset sale losses, net		(2,354	)		(126	)		(2,228	)		N/M			(2,518	)		(2,520	)		2			(0.1	)
Investment securities gains / (losses), net		3,365			(42	)		3,407			N/M			26,800			9,169			17,631			192.3
Total noninterest income	$	81,897		$	75,309		$	6,588			8.7	%	$	260,826		$	266,227		$	(5,401	)		(2.0	)%

N/M – Not meaningful.

Trust service fees were $28.3 million, up $2.2 million (8.6%) between the comparable nine month periods, primarily due to stock market performance. The average market value of assets under management was $5.4 billion and $5.2 billion for the nine months ended September 30, 2010 and 2009, respectively.

Service charges on deposit accounts were $76.4 million, down $11.4 million (12.9%) from the comparable nine month period last year. The decrease was primarily attributable to lower nonsufficient funds / overdraft fees (down $12.2 million to $47.6 million) due to changes in customer behavior, recent regulatory changes, and overdraft policy changes.

Card-based and other nondeposit fees were $34.9 million, up $1.2 million (3.7%) from the first nine months of 2009, primarily due to higher interchange, letter of credit, and other commercial loan servicing fees. Retail commissions (which include commissions from insurance and brokerage product sales) were $46.8 million for the first nine months of 2010, up $1.4 million (3.2%) compared to the first nine months of 2009, including higher brokerage and variable annuity commissions (up $2.5 million to $9.6 million on a combined basis) and an increase in insurance commissions (up $0.4 million), partially offset by lower fixed annuity commissions (down $1.5 million).

Net mortgage banking income was $19.9 million for the first nine months of 2010, down $11.7 million compared to the first nine months of 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 on the mortgage derivatives (collectively “gains on sales and related income”)) was $42.8 million for the first nine months of 2010, a decrease of $10.4 million compared to the first nine months of 2009. This $10.4 million decrease between the

46

comparable nine month periods was primarily attributable to lower gains on sales and related income (down $9.7 million). Secondary mortgage production was $1.7 billion for the first nine months of 2010, compared to $3.1 billion for the first nine months of 2009.

Mortgage servicing rights expense includes both the amortization of the mortgage servicing rights asset and changes to the valuation allowance associated with the mortgage servicing rights asset. Mortgage servicing rights expense is affected by the size of the servicing portfolio, as well as the changes in the estimated fair value of the mortgage servicing rights asset. Mortgage servicing rights expense was $1.4 million higher than the first nine months of 2009, with a $1.4 million lower addition to the valuation reserve (comprised of a $7.5 million and a $6.1 million addition to the valuation reserve in the first nine months of 2009 and 2010, respectively) and $2.8 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 September 30, 2010, the mortgage servicing rights asset, net of its valuation allowance, was $59.5 million, representing 76 bp of the $7.9 billion servicing portfolio, compared to a net mortgage servicing rights asset of $61.1 million, representing 82 bp of the $7.5 billion servicing portfolio at September 30, 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 6, “Goodwill and Other Intangible Assets,” and Note 12, “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 $4.4 million lower than the comparable nine month period in 2009. The decrease in capital market fees, net was due to a $0.1 million decrease in foreign currency related fees and a $4.3 million decrease in interest rate risk related fees (including an unfavorable credit valuation adjustment on the interest rate-related derivative instruments of $4.4 million for the first nine months of 2010 compared to a favorable credit valuation adjustment of $0.2 million for the first nine months of 2009). BOLI income was $11.3 million, down $1.5 million from the first nine months of 2009, due to death benefits received during the first nine months of 2009. Other income of $18.1 million was $1.0 million higher than the first nine months of 2009, with small increases in various other noninterest income categories.

Net asset sale losses were $2.5 million for the first nine months of 2010, compared to net asset sale losses of $2.5 million for the comparable period last year. Net investment securities gains of $26.8 million for first nine months of 2010 were attributable to gains of $28.9 million on the sale of mortgage-related and municipal securities, partially offset by $2.1 million of credit-related other-than-temporary write-downs on the Corporation’s holding of various trust preferred debt securities pools, a non-agency mortgage-related security, and an equity security. Net investment securities gains of $9.2 million for first nine months of 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 a mortgage-related security and credit-related other-than-temporary write-downs of $2.5 million on the Corporation’s holding of a trust preferred security, a non-agency mortgage-related security, and various equity securities. See Note 5, “Investment Securities,” of the notes to consolidated financial statements for additional disclosure.

47

Noninterest Expense

Noninterest expense was $463.5 million for the first nine months of 2010, up $11.1 million (2.4%) from the first nine months of 2009. Personnel expense was up $7.6 million (3.3%) between the comparable nine month periods, while all remaining noninterest expense categories on a combined basis were up $3.5 million (1.6%).

TABLE 5
Noninterest Expense
($ in Thousands)

	3rd Qtr.		3rd Qtr.		Dollar			Percent			YTD		YTD		Dollar			Percent
	2010		2009		Change			Change			2010		2009		Change			Change
Personnel expense	$	80,640	$	73,501	$	7,139			9.7	%	$	239,337	$	231,770	$	7,567			3.3	%
Occupancy		12,157		11,949		208			1.7	%		37,038		37,171		(133	)		(0.4	)%
Equipment		4,637		4,575		62			1.4	%		13,472		13,834		(362	)		(2.6	%)
Data processing		7,502		7,442		60			0.8	%		22,667		23,165		(498	)		(2.1	)%
Business development and advertising		4,297		3,910		387			9.9	%		13,515		13,590		(75	)		(0.6	)%
Other intangible asset amortization		1,206		1,386		(180	)		(13.0	)%		3,713		4,157		(444	)		(10.7	)%
Legal and professional		6,774		3,349		3,425			102.3	%		15,086		13,176		1,910			14.5	%
Foreclosure / OREO expense		7,349		8,688		(1,339	)		(15.4	)%		23,984		27,277		(3,293	)		(12.1	)%
FDIC expense		11,426		8,451		2,975			35.2	%		35,282		32,316		2,966			9.2	%
Stationery and supplies		1,344		1,280		64			5.0	%		4,139		4,632		(493	)		(10.6	)%
Courier		1,063		1,096		(33	)		(3.0	)%		3,205		3,601		(396	)		(11.0	)%
Postage		1,266		1,668		(402	)		(24.1	)%		4,568		5,553		(985	)		(17.7	)%
Other		16,919		13,816		3,103			22.5	%		47,471		42,164		5,307			12.6	%
Total noninterest expense	$	156,580	$	141,111	$	15,469			11.0	%	$	463,477	$	452,406	$	11,071			2.4	%

Personnel expense (which includes salary-related expenses and fringe benefit expenses) was $239.3 million for the first nine months of 2010, up $7.6 million (3.3%) versus the first nine months of 2009. Average full-time equivalent employees were 4,790 for the first nine months of 2010, down 5.8% from 5,088 for the first nine months of 2009. Salary-related expenses increased $6.2 million (3.3%). This increase was primarily the result of higher compensation and commissions (up $4.6 million or 2.7%, including merit increases between the years), combined with increases in formal / discretionary and signing bonuses (up $1.8 million or 19.0%). Fringe benefit expenses were up $1.4 million (3.1%) versus the first nine months of 2009, primarily attributable to higher benefit plan expenses related to the increased compensation expense.

Compared to the first nine months of 2009, occupancy expense of $37.0 million was down $0.1 million (0.4%), equipment expense of $13.5 million was down $0.4 million (2.6%), data processing expense of $22.7 million was down $0.5 million (2.1%), business development and advertising of $13.5 million was down $0.1 million (0.6%), stationery and supplies of $4.1 million was down $0.5 million (10.6%), courier expense of $3.2 million was down $0.4 million (11.0%), and postage expense of $4.6 million was down $1.0 million (17.7%), reflecting efforts to control selected discretionary expenses. Other intangible amortization decreased $0.4 million (10.7%), attributable to the full amortization of certain intangible assets during 2009. Legal and professional fees of $15.1 million increased $1.9 million primarily due to an increase in legal and other professional consultant costs related to corporate projects initiated in 2010. Foreclosure / OREO expenses of $24.0 million decreased $3.3 million, primarily attributable to a decline in OREO write-downs. FDIC expense increased $3.0 million (9.2%) compared to 2009, with a change in the components as 2010 expense reflected a deposit insurance rate increase and a larger assessable deposit base. Other expense increased $5.3 million (12.6%) from the comparable period last year, with the first nine months of 2010 including a $3.2 million early termination penalty on the repayment of $230 million of long-term funding and an increase of $2.1 million to the reserve for losses on unfunded commitments.

48

Income Taxes

For the first nine months of 2010, the Corporation recognized income tax benefit of $31.9 million, compared to income tax benefit of $35.8 million for the first nine months of 2009. The change in income tax was primarily due to the level of pretax income (loss) between the comparable nine-month periods. In addition, during the first quarter of 2009, the Corporation recorded a $17.0 million 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, while during the second quarter of 2009 the Corporation recorded a $5.0 million decrease in the valuation allowance on deferred tax assets.

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 9, “Income Taxes,” of the notes to consolidated financial statements and section “Critical Accounting Policies.”

Balance Sheet

At September 30, 2010, total assets were $22.5 billion, a decrease of $0.3 billion since December 31, 2009. The decrease in assets was primarily due to a $1.8 billion decline in loans and a $544 million decrease in investment securities available for sale, partially offset by a $1.7 billion increase in cash and cash equivalents and a $193 million increase in loans held for sale. The change in assets was primarily funded by deposits, as both short-term borrowings and long-term funding declined since year end 2009.

Loans of $12.4 billion at September 30, 2010, were down $1.8 billion from December 31, 2009, with declines in both commercial and consumer-related loan balances, and a slight shift in the mix of loans. The decline in loans was predominantly due to planned run-off, sales of nonperforming loans, charge offs, and weak new loan demand. Commercial loans decreased $1.5 billion (including a $0.5 billion decline in commercial and industrial loans and a $0.7 billion decline in real estate construction loans), and consumer-related loans were down $0.3 billion (due to the transfer of $147 million of student loans into the loans held for sale category). Investment securities available for sale were $5.3 billion, down $544 million from year-end 2009 (primarily due to the sale of $909 million of mortgage-related and municipal securities during 2010). For the remainder of 2010, the Corporation anticipates that the third quarter 2010 growth experienced in commercial and industrial, home equity, and residential mortgage loans will continue, though this loan growth may be moderated by ongoing efforts to resolve problem credits.

At September 30, 2010, total deposits of $16.8 billion were up $0.1 billion from December 31, 2009. Since year end 2009, money market deposits increased $0.5 billion and brokered CDs grew $0.3 billion, while interest-bearing demand deposit accounts decreased $0.2 billion and other time deposits decreased $0.4 billion. Noninterest-bearing demand deposits decreased to $3.1 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 $2.3 billion was down $0.9 billion since year end 2009, with short-term borrowings down $0.7 billion and long-term funding decreasing $0.2 billion (including the early repayment of $0.2 billion of long-term repurchase agreements and the retirement of $30 million of subordinated debt for which the Corporation incurred an early termination penalty of $3.2 million).

Since September 30, 2009, loans declined $2.4 billion, with commercial loans down $1.9 billion and consumer-related loan balances down $0.5 billion. Since September 30, 2009, deposits grew $0.4 billion, primarily attributable to a $0.6 billion increase in money market deposits and a $0.5 billion increase in interest-bearing demand deposits, partially offset by a $0.2 billion decrease in brokered CDs and a $0.6 billion decrease in other time deposits. Given the increase in deposit balances, wholesale funding was reduced by $1.0 billion since September 30, 2009, primarily in short-term borrowings.

49

TABLE 6
Period End Loan Composition
($ in Thousands)

	September 30, 2010					June 30, 2010					March 31, 2010					December 31, 2009					September 30, 2009
			% of					% of					% of					% of					% of
	Amount		Total			Amount		Total			Amount		Total			Amount		Total			Amount		Total
Commercial and industrial	$	2,989,238		24	%	$	2,969,662		24	%	$	3,099,265		23	%	$	3,450,632		24	%	$	3,613,457		25	%
Commercial real estate		3,494,342		28			3,576,716		28			3,699,139		28			3,817,066		27			3,902,340		26
Real estate construction		736,387		6			925,697		7			1,281,868		10			1,397,493		10			1,611,857		11
Lease financing		74,690		1			82,375		1			87,568		1			95,851		1			102,130		1
Commercial		7,294,657		59			7,554,450		60			8,167,840		62			8,761,042		62			9,229,784		63
Home equity(1)		2,457,461		20			2,455,181		19			2,468,587		18			2,546,167		18			2,591,262		17
Installment		721,480		6			749,588		6			759,025		6			873,568		6			885,970		6
Retail		3,178,941		26			3,204,769		25			3,227,612		24			3,419,735		24			3,477,232		23
Residential mortgage		1,898,795		15			1,842,697		15			1,903,869		14			1,947,848		14			2,058,581		14
Total loans	$	12,372,393		100	%	$	12,601,916		100	%	$	13,299,321		100	%	$	14,128,625		100	%	$	14,765,597		100	%
(1) Home equity includes home equity lines and residential mortgage junior liens.
Farmland	$	39,986		1	%	$	40,544		1	%	$	45,636		1	%	$	47,514		1	%	$	48,584		1	%
Multi-family		528,846		15			518,990		14			526,963		14			543,936		14			538,724		14
Owner occupied		1,086,258		31			1,131,687		32			1,156,318		32			1,198,075		32			1,264,295		32
Non-owner occupied		1,839,252		53			1,885,495		53			1,970,222		53			2,027,541		53			2,050,737		53
Commercial real estate	$	3,494,342		100	%	$	3,576,716		100	%	$	3,699,139		100	%	$	3,817,066		100	%	$	3,902,340		100	%
1-4 family construction	$	137,109		19	%	$	183,953		20	%	$	220,630		17	%	$	251,307		18	%	$	293,568		18	%
All other construction		599,278		81			741,744		80			1,061,238		83			1,146,186		82			1,318,289		82
Real estate construction	$	736,387		100	%	$	925,697		100	%	$	1,281,868		100	%	$	1,397,493		100	%	$	1,611,857		100	%

TABLE 7
Period End Deposit Composition
($ in Thousands)

	September 30, 2010					June 30, 2010					March 31, 2010					December 31, 2009					September 30, 2009
			% of					% of					% of					% of					% of
	Amount		Total			Amount		Total			Amount		Total			Amount		Total			Amount		Total
Noninterest-bearing demand	$	3,054,121		18	%	$	2,932,599		17	%	$	3,023,247		18	%	$	3,274,973		20	%	$	2,984,486		18	%
Savings		902,077		5			913,146		5			897,740		5			845,509		5			871,539		5
Interest-bearing demand		2,921,700		17			2,745,541		16			2,939,390		17			3,099,358		18			2,395,429		15
Money market		6,312,912		38			6,554,559		39			6,522,901		37			5,806,661		35			5,724,418		35
Brokered CDs		442,209		3			571,626		3			742,119		4			141,968		1			653,090		4
Other time		3,171,841		19			3,252,728		20			3,371,390		19			3,560,144		21			3,817,147		23
Total deposits	$	16,804,860		100	%	$	16,970,199		100	%	$	17,496,787		100	%	$	16,728,613		100	%	$	16,446,109		100	%
Total deposits, excluding Brokered CDs	$	16,362,651		97	%	$	16,398,573		97	%	$	16,754,668		96	%	$	16,586,645		99	%	$	15,793,019		96	%
Network transaction deposits included above in interest-bearing demand and money market	$	1,970,050		12	%	$	2,698,204		16	%	$	2,641,648		15	%	$	1,926,539		11	%	$	1,767,271		11	%
Total deposits, excluding Brokered CDs and network transaction deposits	$	14,392,601		86	%	$	13,700,369		81	%	$	14,113,020		81	%	$	14,660,106		88	%	$	14,025,748		85	%

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 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

50

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 September 30, 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 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 September 30, 2010, the allowance for loan losses was $522.0 million compared to $412.5 million at September 30, 2009, and $573.5 million at December 31, 2009. At September 30, 2010, the allowance for loan losses to total loans was 4.22% and covered 64% of nonperforming loans, compared to 2.79% and 47%, respectively, at September 30, 2009, and 4.06% and 51%, respectively, at December 31, 2009. At September 30, 2010, the Corporation had $574 million of specifically identified impaired loans with a current allowance for loan losses allocation of $137 million and for which the Corporation had previously recognized $84 million of net charge offs resulting in a net mark of 67% on impaired loans. At December 31, 2009, the Corporation had $908 million of specifically identified impaired loans with an allowance for loan losses allocation of $142 million and for which the Corporation had previously recognized $244 million of net charge offs resulting in a net mark of 67% 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 nine months of 2010 was $327.0 million, compared to $355.9 million for the first nine months of 2009, and $750.6 million for the full year 2009. Net charge offs were $378.5 million for the nine months ended September 30, 2010, $208.7 million for the comparable period ended September 30, 2009, and $442.5 million for the full year 2009. The increase in net charge offs between the comparable September periods was mainly attributable to the sale of nonperforming loans with a net book value of $434 million, resulting in $147 million of charge offs during 2010, and a higher incidence of larger (greater than $2 million) commercial net charge offs coming from the higher nonperforming loan levels that have existed during the past several quarters within the residential and land development loans, and in the financial services and housing-related industries. The ratio of net charge offs to average loans on an annualized basis was 3.78%, 1.75%, and 2.84% for the nine months ended September 30, 2010, and 2009, and the full year 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

51

for loan losses that the Corporation has experienced in recent periods. During this time period, the Corporation 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 charge offs will remain elevated for the remainder of 2010 as we work through our remaining problem loans.

Loans declined $1.8 billion since year end 2009 with declines in both commercial and consumer-related loan balances (down $1.5 billion and $0.3 billion, respectively); and compared to September 30, 2009, loans declined $2.4 billion with commercial loans down $1.9 billion and consumer-related loan balances down $0.5 billion (see section “Balance Sheet” and Table 6). Criticized loans decreased 27% since year-end 2009 (representing 19% of total loans at September 30, 2010 and 23% of totals loans at December 31, 2009), and compared to a year ago, criticized loans decreased 26% (representing 22% of total loans at September 30, 2009). Loans past due 30-89 days decreased $117 million since year-end 2009 (with commercial past due loans down $120 million and consumer-related past due loans up $3 million), and decreased $51 million since September 30, 2009 (with commercial and consumer-related past due loans down $50 million and $1 million, respectively). Since year-end 2009, nonperforming loans decreased $305 million (with commercial nonperforming loans down $327 million and consumer-related nonperforming loans up $22 million) and decreased $68 million since September 30, 2009 (with commercial and consumer-related nonperforming loans down $96 million and up $28 million, respectively). Nonperforming loans to total loans were 6.61%, 7.94%, and 6.00% at September 30, 2010, and December 31 and September 30, 2009, respectively (see Table 9). The allowance for loan losses to loans increased to 4.22% at September 30, 2010, compared to 4.06% at year-end 2009 and 2.79% at September 30, 2009.

Management believes the level of allowance for loan losses to be appropriate at September 30, 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.

52

TABLE 8
Allowance for Loan Losses
($ in Thousands)

	At and for the nine months								At and for the year
	ended September 30,								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		327,010				355,856				750,645
Charge offs (1)		(410,124		)		(215,839		)		(452,206		)
Recoveries		31,599				7,135				9,716
Net charge offs		(378,525		)		(208,704		)		(442,490		)
Balance at end of period	$	522,018			$	412,530			$	573,533
Net loan charge offs (recoveries):			(A	)			(A	)			(A	)
Commercial and industrial	$	73,530	318		$	112,737	375		$	155,677	401
Commercial real estate (CRE) (1)		86,849	316			15,689	57			56,239	150
Real estate construction (1)		166,809	N/M			32,538	212			157,197	816
Lease financing		1,897	298			1,309	155			1,570	144
Total commercial (1)		329,085	550			162,273	219			370,683	383
Home equity		33,857	183			32,287	158			48,790	181
Installment		5,749	85			6,740	105			8,839	103
Total retail		39,606	157			39,027	146			57,629	162
Residential mortgage		9,834	66			7,404	40			14,178	60
Total net charge offs (1)	$	378,525	378		$	208,704	175		$	442,490	284
CRE & Construction Net Charge Off Detail:			(A	)			(A	)			(A	)
Farmland	$	289	88		$	171	42		$	146	28
Multi-family (1)		12,515	315			1,525	40			6,225	119
Owner occupied		8,786	103			5,339	55			7,352	58
Non-owner occupied (1)		65,259	446			8,654	63			42,516	224
Commercial real estate (1)	$	86,849	316		$	15,689	57		$	56,239	150
1-4 family construction (1)	$	29,490	N/M		$	14,736	543		$	38,662	1,129
All other construction (1)		137,319	N/M			17,802	141			118,535	748
Real estate construction (1)	$	166,809	N/M		$	32,538	212		$	157,197	816

(1)—

Charge offs for the nine months ended September 30, 2010 include $155.4 million of write-downs related to commercial loans sold or transferred to held for sale, comprised of write-downs of $20.4 million on 1-4 family construction, $72.0 million on all other construction, $9.4 million on multi-family commercial real estate, $3.0 million owner occupied commercial real estate, $44.5 million on non-owner occupied commercial real estate, and $6.1 million of commercial and industrial.

(A)—

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

Ratios:
Allowance for loan losses to total loans	4.22	%	2.79	%	4.06	%
Allowance for loan losses to net charge offs (annualized)	1.0x		1.5x		1.3x

53

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

	September 30,				June 30,				March 31,				December 31,					September 30,
Quarterly Trends:	2010				2010				2010				2009					2009
Allowance for Loan Losses:
Balance at beginning of period	$	567,912			$	575,573			$	573,533			$	412,530				$	407,167
Provision for loan losses		64,000				97,665				165,345				394,789					95,410
Charge offs (1)		(122,327		)		(113,170		)		(174,627		)		(236,367			)		(92,340		)
Recoveries		12,433				7,844				11,322				2,581					2,293
Net charge offs		(109,894		)		(105,326		)		(163,305		)		(233,786			)		(90,047		)
Balance at end of period	$	522,018			$	567,912			$	575,573			$	573,533				$	412,530
Impaired Loans Analysis:
Impaired loan amount (pre charge off)	$	657,993			$	943,822			$	1,280,239			$	1,152,323				$	801,039
Cumulative charge offs recognized		(83,919		)		(144,947		)		(292,428		)		(244,137			)		(116,929		)
Current impaired loan balance		574,074				798,875				987,811				908,186					684,110
Reserves on impaired loans		136,812				165,390				158,705				141,675					72,929
Current balance, net of reserves	$	437,262			$	633,485			$	829,106			$	766,511				$	611,181
Current mark on impaired loans *		67		%		67		%		65		%		67			%		76		%
*     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 and industrial	$	4,274	57		$	5,557	73		$	63,699	795		$	42,940		490		$	57,480	611
Commercial real estate (CRE) (1)		28,517	319			37,004	398			21,328	230			40,550		412			4,449	45
Real estate construction (1)		60,488	N/M			46,135	N/M			60,186	N/M			124,659		N/M			12,837	285
Lease financing		826	416			297	141			774	341			261		105			319	119
Total commercial (1)		94,105	498			88,993	444			145,987	698			208,410		915			75,085	313
Home equity		10,875	175			11,213	183			11,769	190			16,503		254			11,202	170
Installment		1,640	74			1,887	83			2,222	98			2,099		94			2,433	113
Total retail		12,515	148			13,100	156			13,991	166			18,602		213			13,635	156
Residential mortgage		3,274	65			3,233	65			3,327	67			6,774		127			1,327	23
Total net charge offs (1)	$	109,894	339		$	105,326	315		$	163,305	476		$	233,786		635		$	90,047	234
CRE & Construction Net Charge Off Detail:			(A	)			(A	)			(A	)				(A	)			(A	)
Farmland	$	2	2		$	98	88		$	189	163		$	(25	)	(21	)	$	—	—
Multi-family (1)		4,119	320			7,279	543			1,117	83			4,700		331			444	33
Owner occupied		3,381	121			1,408	49			3,997	138			2,013		65			2,102	62
Non-owner occupied (1)		21,015	443			28,219	567			16,025	325			33,862		649			1,903	39
Commercial real estate (1)	$	28,517	319		$	37,004	398		$	21,328	230		$	40,550		412		$	4,449	45
1-4 family construction (1)	$	16,409	N/M		$	5,380	N/M		$	7,701	N/M		$	23,926		N/M		$	11,459	N/M
All other construction (1)		44,079	N/M			40,755	N/M			52,485	N/M			100,733		N/M			1,378	37
Real estate construction (1)	$	60,488	N/M		$	46,135	N/M		$	60,186	N/M		$	124,659		N/M		$	12,837	285

(1)	— Charge offs for the three months ended September 30, 2010 include $85.4 million of write-downs related to commercial loans sold or transferred to held for sale, comprised of write-downs of $15.2 million on 1-4 family construction, $40.7 million on all other construction, $2.7 million on multi-family commercial real estate, $3.0 million owner occupied commercial real estate, $21.9 million on non-owner occupied commercial real estate, and $1.9 million of commercial and industrial. Charge offs for the three months ended June 30, 2010, include $65.8 million of write-downs related to commercial loans sold or transferred to held for sale, comprised of write-downs of $5.2 million on 1-4 family construction, $31.3 million on all other construction, $6.7 million on multi-family commercial real estate, and $22.6 million on non-owner occupied commercial real estate. Charge offs for the three months ended March 31, 2010, include $4.2 million of write-downs related to sales of commercial and industrial loans.
(A)	— Annualized ratio of net charge offs to average loans by loan type in basis points.
N/M	— Not meaningful.

54

TABLE 9
Nonperforming Assets
($ in Thousands)

	September 30,				June 30,				March 31,				December 31,				September 30,
	2010				2010				2010				2009				2009
Nonperforming assets:
Nonaccrual loans:
Commercial	$	591,630			$	843,719			$	1,047,840			$	964,888			$	737,817
Residential mortgage		76,589				84,141				85,740				81,811				75,681
Retail		59,658				47,781				46,605				31,100				31,822
Total nonaccrual loans		727,877				975,641				1,180,185				1,077,799				845,320
Accruing loans past due 90 days or more:
Commercial		25,396				1,372				5,450				9,394				6,155
Retail		1,197				1,835				903				15,587				17,019
Total accruing loans past due 90 days or more		26,593				3,207				6,353				24,981				23,174
Restructured loans:
Commercial		31,083				13,290				763				480				265
Residential mortgage		20,633				23,414				15,875				13,410				12,540
Retail		11,062				4,161				6,782				5,147				4,451
Total restructured loans		62,778				40,865				23,420				19,037				17,256
Total nonperforming loans (NPLs)		817,248				1,019,713				1,209,958				1,121,817				885,750
Other real estate owned (OREO)		53,101				51,223				62,220				68,441				60,010
Total nonperforming assets (NPAs)	$	870,349			$	1,070,936			$	1,272,178			$	1,190,258			$	945,760
Restructured loans included in Nonaccrual loans	$	32,657			$	48,215			$	9,862			$	9,393			$	5,353
Ratios:
NPLs to total loans		6.61		%		8.09		%		9.10		%		7.94		%		6.00		%
Nonaccrual loans to total loans		5.88				7.71				8.87				7.63				5.72
NPAs to total loans plus OREO		7.00				8.46				9.52				8.38				6.38
NPAs to total assets		3.86				4.71				5.51				5.20				4.13
Allowance for loan losses to NPLs		63.88				55.69				47.57				51.13				46.57
Allowance for loan losses to nonaccrual loans		71.72				58.21				48.77				53.21				48.80
Allowance for loan losses to total loans		4.22				4.51				4.33				4.06				2.79
Nonperforming assets by type:			(A	)			(A	)			(A	)			(A	)			(A	)
Commercial and industrial	$	157,358	5	%	$	184,808	6	%	$	180,182	6	%	$	234,418	7	%	$	209,843	6	%
Commercial real estate		300,208	9	%		360,974	10	%		356,853	10	%		307,478	8	%		213,736	5	%
Real estate construction		163,621	22	%		284,646	31	%		487,552	38	%		413,360	30	%		301,844	19	%
Leasing		26,922	36	%		27,953	34	%		29,466	34	%		19,506	20	%		18,814	18	%
Total commercial		648,109	9	%		858,381	11	%		1,054,053	13	%		974,762	11	%		744,237	8	%
Home equity		61,815	3	%		46,534	2	%		47,231	2	%		44,257	2	%		45,905	2	%
Installment		10,102	1	%		7,243	1	%		7,059	1	%		7,577	1	%		7,387	1	%
Total retail		71,917	2	%		53,777	2	%		54,290	2	%		51,834	2	%		53,292	2	%
Residential mortgage		97,222	5	%		107,555	6	%		101,615	5	%		95,221	5	%		88,221	4	%
Total nonperforming loans		817,248	7	%		1,019,713	8	%		1,209,958	9	%		1,121,817	8	%		885,750	6	%
Commercial real estate owned		39,002				35,659				46,425				52,468				45,188
Residential real estate owned		10,783				11,607				11,397				11,572				11,635
Bank properties real estate owned		3,316				3,957				4,398				4,401				3,187
Other real estate owned		53,101				51,223				62,220				68,441				60,010
Total nonperforming assets	$	870,349			$	1,070,936			$	1,272,178			$	1,190,258			$	945,760
Commercial real estate & Real estate construction NPLs Detail:
Farmland	$	4,354	11	%	$	3,048	8	%	$	2,801	6	%	$	1,524	3	%	$	1,303	3	%
Multi-family		35,696	7	%		34,034	7	%		32,835	6	%		17,867	3	%		23,317	4	%
Owner occupied		81,265	7	%		86,615	8	%		70,444	6	%		61,170	5	%		46,623	4	%
Non-owner occupied		178,893	10	%		237,277	13	%		250,773	13	%		226,917	11	%		142,493	7	%
Commercial real estate	$	300,208	9	%	$	360,974	10	%	$	356,853	10	%	$	307,478	8	%	$	213,736	5	%
1-4 family construction	$	35,078	26	%	$	65,204	35	%	$	92,828	42	%	$	77,902	31	%	$	88,849	30	%
All other construction		128,543	21	%		219,442	30	%		394,724	37	%		335,458	29	%		212,995	16	%
Real estate construction	$	163,621	22	%	$	284,646	31	%	$	487,552	38	%	$	413,360	30	%	$	301,844	19	%

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

55

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

	September 30,		June 30,		March 31,		December 31,		September 30,
	2010		2010		2010		2009		2009
Loans 30-89 days past due by type:
Commercial and industrial	$	14,505	$	40,415	$	51,042	$	64,369	$	43,159
Commercial real estate		56,710		50,721		69,836		81,975		50,029
Real estate construction		12,225		23,368		13,805		56,559		39,184
Leasing		168		628		98		823		873
Total commercial		83,608		115,132		134,781		203,726		133,245
Home equity		20,044		15,869		12,919		14,304		16,852
Installment		10,536		6,567		4,794		8,499		7,401
Total retail		30,580		22,436		17,713		22,803		24,253
Residential mortgage		10,065		11,110		12,786		14,226		17,994
Total loans past due 30-89 days	$	124,253	$	148,678	$	165,280	$	240,755	$	175,492
Commercial real estate & Real estate construction loans 30-89 days past due Detail:
Farmland	$	237	$	1,686	$	123	$	1,338	$	265
Multi-family		20,240		16,552		6,508		7,669		2,780
Owner occupied		4,887		7,348		24,137		30,043		21,071
Non-owner occupied		31,346		25,135		39,068		42,925		25,913
Commercial real estate	$	56,710	$	50,721	$	69,836	$	81,975	$	50,029
1-4 family construction	$	10,412	$	974	$	2,313	$	38,555	$	9,530
All other construction		1,813		22,394		11,492		18,004		29,654
Real estate construction	$	12,225	$	23,368	$	13,805	$	56,559	$	39,184
Potential problem loans by type:
Commercial and industrial	$	373,955	$	482,686	$	505,903	$	563,836	$	481,034
Commercial real estate		553,126		553,316		565,969		598,137		588,013
Real estate construction		175,817		203,560		262,572		391,105		462,029
Leasing		2,302		6,784		5,158		8,367		9,572
Total commercial		1,105,200		1,246,346		1,339,602		1,561,445		1,540,648
Home equity		6,495		7,778		7,446		13,400		15,933
Installment		692		725		1,103		1,524		1,908
Total retail		7,187		8,503		8,549		14,924		17,841
Residential mortgage		19,416		17,304		19,591		19,150		15,414
Total potential problem loans	$	1,131,803	$	1,272,153	$	1,367,742	$	1,595,519	$	1,573,903

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 $15.7 million, $18.8 million, and $20.6 million of these past due student loans at September 30, 2010, September 30, 2009, and December 31, 2009, respectively.

Loans are generally placed on nonaccrual status when contractually past due 90 days or more as to interest or principal payments. Additionally, whenever management becomes aware of facts or circumstances that may adversely impact the collectibility of principal or interest on loans, management may place such loans on nonaccrual status immediately, rather than delaying such action until the loans become 90 days past due. Previously accrued and uncollected interest on such loans is reversed, amortization of related loan fees is suspended, and income is recorded only to the extent that interest payments are subsequently received in cash and

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a determination has been made that the principal balance of the loan is collectible. If collectibility of the principal is in doubt, payments received are applied to loan principal.

Loans past due 90 days or more but still accruing interest are also included in nonperforming loans. Loans past due 90 days or more but still accruing interest are classified as such where the underlying loans are both well secured (the collateral value is sufficient to cover principal and accrued interest) and are in the process of collection.

Also included in nonperforming loans are loans modified in a troubled debt restructuring (or “restructured” loans). Restructured loans involve the granting of some concession to the borrower involving the modification of terms of the loan, such as changes in payment schedule or interest rate, which generally would not otherwise be considered. Restructured loans can involve loans remaining on nonaccrual, moving to nonaccrual, or continuing on accrual status, depending on the individual facts and circumstances of the borrower. Generally, restructured loans remain on nonaccrual until the customer has attained a sustained period of repayment performance. However, performance prior to the restructuring, or significant events that coincide with the restructuring, are considered in assessing whether the borrower can meet the new terms and whether the loan should be returned to accrual status. If the borrower’s ability to meet the revised payment schedule is not reasonably assured, the loan remains on nonaccrual. During 2009, as a result of the Corporation’s continued efforts to support foreclosure prevention in the markets we serve, the Corporation introduced a modification program (similar to the government modification programs available), in which the Corporation works with our mortgage customers to provide them with an affordable monthly payment through extension of the maturity date (up to 40 years), reduction in interest rate, and / or partial principal forbearance. During the second quarter of 2010, the Corporation began utilizing a multiple note structure as a workout alternative for certain commercial loans. The multiple note structure restructures a troubled loan into two notes, where the first note is reasonably assured of repayment and performance according to the prudently modified terms and the portion of the troubled loan that is not reasonably assured of repayment is charged off. To date, the Corporation’s use of the multiple note structure has not been material, but use of this structure could increase in future periods. At September 30, 2010, the Corporation had total restructured loans of $95 million (including $32 million classified as nonaccrual and $63 million performing in accordance with the modified terms), compared to $28 million at December 31, 2009 (including $9 million classified as nonaccrual) and $23 million at September 30, 2009 (including $5 million classified as nonaccrual).

Nonperforming loans were $817 million at September 30, 2010, compared to $886 million at September 30, 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 $124 million at September 30, 2010, a decrease of $51 million from September 30, 2009 and a decrease of $117 million from December 31, 2009. The ratio of nonperforming loans to total loans was 6.61% at September 30, 2010, compared to 6.00% at September 30, 2009 and 7.94% at year-end 2009. The Corporation’s allowance for loan losses to nonperforming loans was 64% at September 30, 2010, compared to 47% at September 30, 2009 and 51% at December 31, 2009.

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. Nonperforming loans decreased $305 million since December 31, 2009, through a combination of bulk and individual loan sales. During 2010, the Corporation sold nonperforming loans with a net book value of $434 million, resulting in $147 million of charge offs. As shown in Table 9, total nonperforming loans were down $305 million since year-end 2009, with commercial nonperforming loans down $327 million and consumer-related nonperforming loans were up $22 million. Since September 30, 2009, total nonperforming loans decreased $68 million, with commercial nonperforming loans down $96 million and consumer-related nonperforming loans up $28 million. 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 September 30, 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.

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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 September 30, 2010, potential problem loans totaled $1.1 billion, compared to $1.6 billion at September 30, 2009, and $1.6 billion at December 31, 2009. The $0.5 billion decrease in potential problem loans since December 31, 2009, was primarily due to a $215 million decrease in real estate construction, a $190 million decrease in commercial and industrial, and a $45 million decrease in commercial real estate, while the $0.5 billion decrease since September 30, 2009 was primarily due to a $286 million decrease in real estate construction, a $107 million decrease in commercial and industrial, and a $35 million decrease in commercial real estate . 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 $53.1 million at September 30, 2010, compared to $60.0 million at September 30, 2009, and $68.4 million at year-end 2009. The $6.9 million decrease in other real estate owned between the September 30 periods included a $6.2 million decrease in commercial real estate owned and a $0.8 million decrease in residential real estate owned, partially offset by a $0.1 million increase to bank premises no longer used for banking and reclassified into other real estate owned. Since year-end 2009, other real estate owned decreased $15.3 million, including a $13.4 million decrease in commercial real estate owned, a $1.1 million decrease in bank premises no longer used for banking and reclassified into other real estate owned, and a $0.8 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 of investment securities, securities repurchase agreements and lines of credit with counterparty banks, the ability to acquire large, network, and brokered deposits, and the ability to securitize or package loans for sale. The Corporation regularly evaluates the creation of additional funding capacity based on market opportunities and conditions, as well as corporate funding needs, 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 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

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management process. At September 30, 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, Standard and Poor’s (“S&P”), and Fitch. Credit ratings by these nationally recognized statistical rating agencies are an important component of the Corporation’s liquidity profile. Credit ratings relate to the 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 November 2009 and 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 negative credit watch was subsequently removed by S&P on July 26, 2010. The primary impact of these credit rating downgrades was that unsecured funding has become severely limited; however, the Corporation retained over $4 billion in secured borrowing capacity available at September 30, 2010; despite 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 2010. 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.

	September 30, 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-	BBB-
Corporation short-term	P2	B	B	P1	B	B
Corporation long-term	Baa1	BB-	BB+	A2	BB+	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 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 September 30, 2010. The availability under the commercial paper program was temporarily suspended due to the S&P downgrade in November 2009.

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

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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.

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. 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 requires the Corporation to obtain approval prior to the payment of dividends and interest or principal payments on subordinated debt, increases in borrowings or guarantees of debt, or the repurchase of common stock. See section “Capital” for additional discussion.

A bank note program associated with the Bank was established during 2000. Under this program, short-term and long-term debt may be issued. As of September 30, 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 September 30, 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 counterparty banks and the ability to borrow from the Federal Home Loan Bank ($1.1 billion was outstanding at September 30, 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 September 30, 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 September 30, 2010, $2.3 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 $191 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 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

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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 interim final rule extends the TAG Program through December 31, 2010, with no increase in the TAG assessment rates. In addition, the interim final 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.

On July 21, 2010, Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Act provides unlimited FDIC insurance for noninterest-bearing transaction accounts in all banks effective on December 31, 2010 and continuing through December 31, 2012. The current FDIC TAG Program, which continues to the end of this year, is not changed by this Act. The unlimited FDIC coverage of noninterest-bearing transaction accounts will no longer be a special program; rather, it will be part of the standard FDIC insurance coverage for 2011 and 2012. Importantly, the Act also removes the prohibition on payments of interest on commercial demand deposit accounts as of July 21, 2011 (i.e., one year after the date of enactment). The impact of the removal of the prohibition of interest on commercial demand deposit accounts could have significant implications for the Corporation. Refer to section, “Recent Developments,” and Part II, Item 1A,, “Risk Factors,” for additional information.

For the nine months ended September 30, 2010, net cash provided by operating and investing activities was $350.9 million and $1.8 billion, respectively, while net cash used by financing activities was $396.7 million, for a net increase in cash and cash equivalents of $1.7 billion since year-end 2009. During the first nine months of 2010, assets decreased $349 million, with loans down $1.8 billion and investment securities declining $544 million, while loans held for sale increased $193 million. On the funding side, deposits increased $76 million while wholesale funding declined $928 million.

For the nine months ended September 30, 2009, net cash provided by operating and investing activities was $0.1 billion and $0.9 billion, respectively, while financing activities used net cash of $1.1 billion, for a net decrease in cash and cash equivalents of $0.1 billion since year-end 2008. Generally, during the first nine months of 2009, assets decreased $1.3 billion (5.4%), including a decrease in loans (down $1.5 billion), partially offset by an increase in investment securities (up $508 million). The $1.3 billion increase in deposits was predominantly used to fund the change in assets and repay wholesale funding 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.

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

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(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 September 30, 2010.

Table 10: Interest Rate Sensitivity Analysis

	Interest Sensitivity Period
										Total
				91-180			181-365			Within			Over 1
	0-90 Days			Days			Days			1 Year			Year			Total
	($ in Thousands)
Earning assets:
Loans held for sale	$	274,666		$	—		$	—		$	274,666		$	—		$	274,666
Investment securities, at fair value		1,168,690			296,173			497,682			1,962,545			3,519,709			5,482,254
Loans		6,492,633			655,186			1,179,027			8,326,846			4,045,547			12,372,393
Other earning assets		2,221,803			—			—			2,221,803			—			2,221,803
Total earning assets	$	10,157,792		$	951,359		$	1,676,709		$	12,785,860		$	7,565,256		$	20,351,116
Interest-bearing liabilities:
Deposits (1) (2)	$	3,945,014		$	1,812,890		$	3,475,311		$	9,233,215		$	7,129,436		$	16,362,651
Other interest-bearing liabilities (2)		928,503			315,872			275,034			1,519,409			1,175,734			2,695,143
Interest rate swap		(200,000	)		—			100,000			(100,000	)		100,000			—
Total interest-bearing liabilities	$	4,673,517		$	2,128,762		$	3,850,345		$	10,652,624		$	8,405,170		$	19,057,794
Interest sensitivity gap	$	5,484,275		$	(1,177,403	)	$	(2,173,636	)	$	2,133,236		$	(839,914	)	$	1,293,322
Cumulative interest sensitivity gap	$	5,484,275		$	4,306,872		$	2,133,236
Cumulative gap as a percentage of earning assets at September 30, 2010		26.9	%		21.2	%		10.5	%

(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 $442 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 September 30, 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 September 30, 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 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

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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 September 30, 2010, projected that net interest income would increase by approximately 3.9% 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 September 30, 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 September 30, 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 September 30, 2010, is included in Note 10, “Derivative and Hedging Activities,” of the notes to consolidated financial statements. A discussion of the Corporation’s lending-related commitments is included in Note 11, “Commitments, Off-Balance Sheet Arrangements, and Contingent Liabilities,” of the notes to consolidated financial statements. See also Note 7, “Long-term Funding,” of the notes to consolidated financial statements for additional information on the Corporation’s long-term funding.

Table 11 summarizes significant contractual obligations and other commitments at September 30, 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	$	2,413,255	$	1,113,292	$	87,221	$	282	$	3,614,050
Short-term borrowings		539,263		—		—		—		539,263
Long-term funding		669,875		800,132		20		243,644		1,713,671
Operating leases		11,587		19,680		12,978		15,845		60,090
Commitments to extend credit		3,149,069		717,715		172,830		49,853		4,089,467
Total	$	6,783,049	$	2,650,819	$	273,049	$	309,624	$	10,016,541

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Capital

Stockholders’ equity at September 30, 2010 was $3.2 billion, up $462 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 $0.03 per common share were paid in the first nine months of 2010, compared to $0.42 per common share in the first nine months of 2009. At September 30, 2010, stockholders’ equity included $78.8 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 $108.6 million at September 30, 2010). Stockholders’ equity to assets was 14.21% and 11.97% at September 30, 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. At September 30, 2010, 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 September 30, 2010, the Bank’s capital ratios were 9.17% and 16.48%, 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. As required, management has submitted plans to strengthen board and management oversight and risk management and for maintaining sufficient capital incorporating stress scenarios. As also required, the Corporation has submitted quarterly progress reports, and has obtained, and will in the future continue to obtain, approval prior to payment of dividends and interest or principal payments on subordinated debt, increases in borrowings or guarantees of debt, or the repurchase of common stock.

On November 21, 2008, the Corporation announced that it sold $525 million of Senior Preferred Stock and related Common Stock Warrants to the UST under the Capital Purchase Program (“CPP”). Under the CPP, prior to the third anniversary of the UST’s purchase of the Senior Preferred Stock (November 21, 2011), unless the Senior Preferred Stock has been redeemed or the UST has transferred all of the Senior Preferred Stock to third parties, the consent of the UST will be required for us to redeem, purchase or acquire any shares of our common stock or other capital stock or other equity securities of any kind, other than (i) redemptions, purchases or other 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. During 2009 and the first nine months of 2010, no shares were repurchased under this authorization. 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

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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
	Sept. 30,			June 30,			March 31,			Dec. 31,			Sept. 30,
	2010			2010			2010			2009			2009
Total stockholders’ equity	$	3,200,849		$	3,186,127		$	3,180,509		$	2,738,608		$	2,924,659
Tier 1 capital		2,367,021			2,358,396			2,366,457			1,918,238			2,103,581
Total capital		2,565,227			2,600,650			2,618,318			2,180,959			2,372,711
Market capitalization		2,282,121			2,120,428			2,378,829			1,407,915			1,460,207
Book value per common share	$	15.53		$	15.46		$	15.44		$	17.42		$	18.88
Tangible book value per common share		10.02			9.93			9.90			9.93			11.38
Cash dividend per common share		0.01			0.01			0.01			0.05			0.05
Stock price at end of period		13.19			12.26			13.76			11.01			11.42
Low closing price for the period		11.96			12.26			11.48			10.37			9.21
High closing price for the period		13.90			16.10			14.54			13.00			12.67
Total stockholders’ equity / assets		14.21	%		14.00	%		13.76	%		11.97	%		12.78	%
Tangible common equity / tangible assets(1)		8.03			7.88			7.73			5.79			6.64
Tangible stockholders’ equity / tangible assets(2)		10.41			10.23			10.04			8.12			8.96
Tier 1 common equity / risk-weighted assets(3)		12.31			12.00			11.43			7.85			8.67
Tier 1 leverage ratio		10.78			10.80			10.57			8.76			9.35
Tier 1 risk-based capital ratio		17.68			17.25			16.40			12.52			13.14
Total risk-based capital ratio		19.16			19.02			18.15			14.24			14.83
Shares outstanding (period end)		173,019			172,955			172,880			127,876			127,864
Basic shares outstanding (average)		172,989			172,921			165,842			127,869			127,863
Diluted shares outstanding (average)		172,990			172,921			165,842			127,869			127,863

(1)	Tangible common equity to tangible assets = Common stockholders’ equity excluding goodwill and other intangible assets divided by assets excluding goodwill and other intangible assets. This is a non-GAAP financial measure.
(2)	Tangible stockholders’ equity to tangible assets = Total stockholders’ equity excluding goodwill and other intangible assets divided by assets excluding goodwill and other intangible assets. This is a non-GAAP financial measure.
(3)	Tier 1 common equity to risk-weighted assets = Tier 1 capital excluding qualifying perpetual preferred stock and qualifying trust preferred securities divided by risk-weighted assets. This is a non-GAAP financial measure.

Comparable Second Quarter Results

The Corporation recorded net income of $14.3 million for the three months ended September 30, 2010, compared to net income of $16.0 million for the three months ended September 30, 2009. Net income available to common equity was $6.9 million for the three months ended September 30, 2010, or net income of $0.04 for both basic and diluted earnings per common share. Comparatively, net income available to common equity for the three months ended September 30, 2009, was $8.7 million, or net income of $0.07 for both basic and diluted earnings per common share (see Table 1).

Taxable equivalent net interest income for the third quarter of 2010 was $159.8 million, $25.4 million lower than the third quarter of 2009. Changes in balance sheet volume and mix decreased taxable equivalent net interest income by $15.8 million, while changes in the rate environment and product pricing lowered net interest income by $9.6 million. The Federal funds rate averaged 0.25% for both the third quarter of 2010 and the third quarter of 2009. The net interest margin between the comparable quarters was down 42 bp, to 3.08% in the third quarter of 2010, comprised of a 39 bp lower interest rate spread (to 2.87%, as the yield on earning assets declined 72 bp and the rate on interest-bearing liabilities fell 33 bp) and a 3 bp lower contribution from net free funds (to 0.21%, as lower rates on interest-bearing liabilities decreased the value of noninterest-bearing funds). Average earning assets declined $0.4 billion to $20.7 billion in the third quarter of 2010, with average loans down $2.4 billion (predominantly in commercial loans), while average investments increased $2.0 billion. On the funding side, average interest-bearing deposits were up $0.7 billion, while average demand deposits increased $168 million. On average, wholesale funding balances were down $1.7 billion, primarily in short-term borrowings.

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Provision for loan losses for the third quarter of 2010 was $64.0 million (or $45.9 million less than net charge offs), compared to $95.4 million (or $5.4 million greater than net charge offs) in the third quarter of 2009. Annualized net charge offs represented 3.39% of average loans for the third quarter of 2010 compared to 2.34% for the third quarter of 2009. Total nonperforming loans of $817 million (6.61% of total loans) at September 30, 2010 were down from $886 million (6.00% of total loans) at September 30, 2009, with commercial nonperforming loans down $96 million to $648 million, and total consumer-related nonperforming loans up $28 million to $169 million (see Table 9). The allowance for loan losses to loans at September 30, 2010 was 4.22%, compared to 2.79% at September 30, 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 third quarter of 2010 increased $6.6 million (8.7%) to $81.9 million versus the third quarter of 2009. Core fee-based revenues of $60.7 million were down $5.8 million (8.8%) versus the comparable quarter in 2009, primarily due to lower levels of consumer fee-based deposit activity (nonsufficient funds / overdraft fees). Net mortgage banking increased $9.9 million from the third quarter of 2009, predominantly due to higher gains on sales and related income. Net asset sale losses were $2.4 million for the third quarter of 2010, compared to net asset sale losses of $0.1 million for the third quarter of 2009, with the unfavorable change primarily due to losses on sales of other real estate owned. Net investment gains were $3.4 million for the third quarter of 2010, a favorable change of $3.4 million from the third quarter of 2009, due to gains on the sale of $371 million of mortgage-related and municipal securities in the third quarter of 2010. All remaining noninterest income categories on a combined basis were $1.3 million higher than the third quarter of 2009.

On a comparable quarter basis, noninterest expense increased $15.5 million (11.0%) to $156.6 million in the third quarter of 2010. Personnel expense increased $7.1 million (9.7%) from the third quarter of 2009, with salary-related expenses up $7.3 million (full-time equivalent employees decreased 4% between the comparable third quarter periods) and fringe benefit expenses down $0.2 million. Legal and professional fees increased $3.4 million (102.3%) primarily due to an increase in legal and other professional consultant costs related to corporate projects initiated during 2010. FDIC expense increased $3.0 million (35.2%) with the third quarter of 2010 reflecting a deposit insurance rate increase and a larger assessable deposit base. Foreclosure/OREO expense decreased $1.3 million (15.4%), primarily attributable to a decline in other real estate owned write-downs. All remaining noninterest expense categories on a combined basis were up $3.3 million (7%) compared to the third quarter of 2009, reflecting efforts to control selected discretionary expenses. For the third quarter of 2010, the Corporation recognized income tax expense of $0.9 million, compared to income tax expense of $2.0 million for the third quarter of 2009.

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TABLE 13
Selected Quarterly Information
($ in Thousands)

	For the Quarter Ended
	Sept. 30,			June 30,			March 31,			Dec. 31,			Sept. 30,
	2010			2010			2010			2009			2009
Summary of Operations:
Net interest income	$	153,904		$	159,793		$	169,222		$	178,353		$	179,236
Provision for loan losses		64,000			97,665			165,345			394,789			95,410
Noninterest income
Trust service fees		9,462			9,517			9,356			9,906			9,057
Service charges on deposit accounts		23,845			26,446			26,059			29,213			30,829
Card-based and other nondeposit fees		12,093			11,942			10,820			12,359			11,586
Retail commissions		15,276			15,722			15,817			15,296			15,041
Core fee-based revenue		60,676			63,627			62,052			66,774			66,513
Mortgage banking, net		9,007			5,493			5,407			9,227			(909	)
Capital market fees, net		891			(136	)		130			291			226
BOLI income		3,756			4,240			3,256			3,310			3,789
Asset sale gains (losses), net		(2,354	)		1,477			(1,641	)		(1,551	)		(126	)
Investment securities gains (losses), net		3,365			(146	)		23,581			(395	)		(42	)
Other		6,556			6,336			5,253			7,078			5,858
Total noninterest income		81,897			80,891			98,038			84,734			75,309
Noninterest expense
Personnel expense		80,640			79,342			79,355			72,620			73,501
Occupancy		12,157			11,706			13,175			12,170			11,949
Equipment		4,637			4,450			4,385			4,551			4,575
Data processing		7,502			7,866			7,299			7,728			7,442
Business development and advertising		4,297			4,773			4,445			4,443			3,910
Other intangible amortization		1,206			1,254			1,253			1,386			1,386
Legal and professional fees		6,774			5,517			2,795			6,386			3,349
Foreclosure/OREO expense		7,349			8,906			7,729			10,852			8,688
FDIC expense		11,426			12,027			11,829			9,618			8,451
Other		20,592			19,197			19,594			29,260			17,860
Total noninterest expense		156,580			155,038			151,859			159,014			141,111
Income tax expense (benefit)		917			(9,240	)		(23,555	)		(117,479	)		2,030
Net income (loss)		14,304			(2,779	)		(26,389	)		(173,237	)		15,994
Preferred stock dividends and discount accretion		7,389			7,377			7,365			7,354			7,342
Net income (loss) available to common equity	$	6,915		$	(10,156	)	$	(33,754	)	$	(180,591	)	$	8,652
Taxable equivalent net interest income	$	159,818		$	165,759		$	175,256		$	184,541		$	185,174
Net interest margin		3.08	%		3.22	%		3.35	%		3.59	%		3.50	%
Effective tax rate (benefit)		6.03	%		(76.88	)%		(47.16	)%		(40.41	)%		11.26	%
Average Balances:
Assets	$	22,727,208		$	22,598,695		$	23,151,767		$	22,773,576		$	23,362,954
Earning assets		20,660,498			20,598,637			21,075,408			20,499,225			21,063,016
Interest-bearing liabilities		16,376,904			16,408,718			16,970,884			16,663,947			17,412,341
Loans		12,855,791			13,396,710			13,924,978			14,605,107			15,248,895
Deposits		17,138,105			17,056,193			17,143,924			16,407,034			16,264,181
Wholesale funding		2,326,469			2,343,119			2,837,001			3,332,642			4,067,830
Stockholders’ equity		3,206,742			3,186,295			3,145,074			2,898,132			2,904,210

Sequential Quarter Results

The Corporation recorded net income of $14.3 million for the three months ended September 30, 2010, compared to a net loss of $2.8 million for the three months ended June 30, 2010. Net income available to common equity was $6.9 million for the three months ended September 30, 2010, or net income of $0.04 for both basic and diluted earnings per common share. Comparatively, net loss available to common equity for the three months ended June 30, 2010, was $10.2 million, or a net loss of $0.06 for both basic and diluted earnings per common share
(see Table 1).

Taxable equivalent net interest income for the third quarter of 2010 was $159.8 million, $5.9 million lower than the second quarter of 2010. Changes in balance sheet volume and mix decreased taxable equivalent net interest income

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by $4.1 million and changes in the rate environment and product pricing lowered net interest income by $2.5 million, while one additional day in the third quarter increased net interest income by $0.7 million. The Federal funds rate averaged 0.25% for both the third quarter of 2010 and the second quarter of 2010. The net interest margin between the sequential quarters was down 14 bp, to 3.08% in the third quarter of 2010, attributable to a 13 bp lower interest rate spread (to 2.87%, as the yield on earning assets declined 20 bp and the rate on interest-bearing liabilities fell 7 bp). Average earning assets increased $62 million to $20.7 billion in the third quarter of 2010, with average investment securities and other short-term investments up $603 million and average loans down $541 million. On the funding side, average interest-bearing deposits were down $15 million, while average demand deposits were up $97 million. On average, wholesale funding balances were down $17 million.

Provision for loan losses for the third quarter of 2010 was $64.0 million (or $45.9 million less than net charge offs), compared to $97.7 million (or $7.7 million less than net charge offs) in the second quarter of 2010. Annualized net charge offs represented 3.39% of average loans for the third quarter of 2010 compared to 3.15% for the second quarter of 2010. Total nonperforming loans of $817 million (6.61% of total loans) at September 30, 2010 were down from $1.0 billion (8.09% of total loans) at June 30, 2010, with commercial nonperforming loans down $210 million to $648 million, and total consumer-related nonperforming loans up $8 million to $169 million (see Table 9). The allowance for loan losses to loans at September 30, 2010 was 4.22%, compared to 4.51% at June 30, 2010. See discussion under sections, “Provision for Loan Losses,” “Allowance for Loan Losses,” and “Nonperforming Loans and Other Real Estate Owned.”

Noninterest income for the third quarter of 2010 increased $1.0 million (1.2%) to $81.9 million versus second quarter 2010. Core fee-based revenues of $60.7 million were down $3.0 million (4.6%) versus second quarter 2010, primarily due to lower levels of consumer fee-based deposit activity (nonsufficient funds / overdraft fees). Net asset sale losses were $2.4 million for the third quarter of 2010, compared to net asset sale gains of $1.5 million for the second quarter of 2010, primarily due to losses on sales of other real estate owned. Net investment securities gains of $3.4 million for the third quarter of 2010 were primarily attributable to gains on the sale of $371 million in mortgage-related and municipal securities, while net investment securities losses of $0.1 million for the second quarter of 2010 were attributable to credit-related other-than-temporary write-downs. All remaining noninterest income categories on a combined basis were $4.3 million higher than the second quarter of 2010, with the majority of the increase from secondary mortgage production revenue.

On a sequential quarter basis, noninterest expense increased $1.5 million (1.0%) to $156.6 million in the third quarter of 2010. Legal and professional fees increased $1.3 million (22.8%) primarily due to higher other professional consultant costs. Foreclosure/OREO expense decreased $1.6 million (17.5%), primarily attributable to lower collection costs. All remaining noninterest expense categories on a combined basis were up $1.8 million (1.3%) compared to the second quarter of 2010.

For the third quarter of 2010, the Corporation recognized income tax expense of $0.9 million, compared to income tax benefit of $9.2 million for the second quarter of 2010. The change in income tax was primarily due to the level of pretax income / loss between the sequential quarters.

Future Accounting Pronouncements

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

In July 2010, the FASB issued guidance for improving disclosures about an entity’s allowance for loan losses and the credit quality of its loans. The guidance requires additional disclosure to facilitate financial statement users’ evaluation of the following: (1) the nature of credit risk inherent in the entity’s loan portfolio, (2) how that risk is analyzed and assessed in arriving at the allowance for loan losses, and (3) the changes and reasons for those

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changes in the allowance for loan losses. The increased disclosures as of the end of a reporting period are effective for periods ending on or after December 15, 2010. Increased disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 31, 2010. The Corporation is currently evaluating the disclosure requirements of this guidance, but does not expect it to have a material impact on the Corporation’s results of operations, financial position, and liquidity.

Recent Developments

On October 26, 2010, the Board of Directors declared a $0.01 per common share dividend payable on November 17, 2010, to shareholders of record as of November 9, 2010. This cash dividend has not been reflected in the accompanying consolidated financial statements.

In response to the current national and international economic recession and to strengthen supervision of financial institutions and systemically important nonbank financial companies, Congress and the U.S. government have taken a variety of actions including the passage of legislation and the implementation of certain programs. By far, the most significant of these was the passage, on July 21, 2010, into law of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Act represents the most comprehensive change to banking laws since the Great Depression of the 1930s, and mandates change in several key areas: regulation and compliance (both with respect to financial institutions and systemically important nonbank financial companies), securities regulation, executive compensation, regulation of derivatives, corporate governance, and consumer protection. While these changes in the law will have a major impact on large institutions, even relatively smaller institutions such as ours will be affected.

In this respect, it is noteworthy that preemptive rights heretofore granted to national banking associations by the OCC under the National Bank Act, and to federal savings banks by the Office of Thrift Supervision (which will be merged into the OCC) under the Home Owners Loan Act, will be diminished with respect to consumer financial laws and regulations. Thus, Congress has authorized states to enact their own substantive protections and to allow state attorneys general to initiate civil actions to enforce federal consumer protections. In this respect the Corporation will be subject to regulation by a new consumer protection bureau housed within the Federal Reserve, known as the Bureau of Consumer Financial Protection. The Bureau will consolidate enforcement currently undertaken by financial regulatory agencies, and will have substantial power to define the rights of consumers and responsibilities of providers, including the Corporation. In addition, and among many other legislative changes that the Corporation will assess, the Corporation will (1) need to evaluate the extent to which it must divest over time its investments in private equity and hedge funds, (2) experience a new assessment model from the FDIC based on assets, not deposits, (3) be required to retain some credit risk for certain mortgages it sells into secondary markets via asset backed securities, (4) be subject to enhanced executive compensation and corporate governance requirements, (5) be able, for the first time (and perhaps competitively compelled) to offer interest on business transaction and other accounts, (6) need to evaluate the extent to which, if any, it may need to push out swap activities to an uninsured affiliate within the organization, and (7) need to evaluate its capital compliance at the holding company level due to its issuance of trust preferred securities.

The extent to which the new legislation and existing and planned governmental initiatives hereunder will succeed in alleviating tight credit conditions or otherwise result in an improvement in the national economy is uncertain. In addition, because most of the component parts of the new legislation will be subject to intensive agency rulemaking and subsequent public comment over the next six to 18 months prior to eventual implementation, it is difficult to predict the ultimate effect of the Act on the Corporation at this time. The Corporation anticipates expenses will increase as a result of new compliance requirements.

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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 September 30, 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 September 30, 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.

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.

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 1A. Risk Factors

You should carefully consider the risks and uncertainties described in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2009 and the updated risk factors below as well as the other information in our subsequent filings with the SEC, including this Quarterly Report on Form 10-Q.

The recently enacted Dodd-Frank Act may adversely impact the Corporation’s results of operations, financial condition or liquidity.On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Act”), was signed into law. The Act represents a comprehensive overhaul of the financial services

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industry within the United States, establishes the new federal Bureau of Consumer Financial Protection, and requires the bureau and other federal agencies to implement many new and significant rules and regulations. At this time, it is difficult to predict the extent to which the Act or the resulting rules and regulations will impact the Corporation’s business. Compliance with these new laws and regulations will likely result in additional costs, which could be significant, and may adversely impact the Corporation’s results of operations, financial condition or liquidity. See “Recent Developments” section within Part I, Item 2, for additional information.

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

Following are the Corporation’s monthly common stock purchases during the third 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
	Total Number of				Shares Purchased as		Shares that May Yet
	Shares		Average Price		Part of Publicly		Be Purchased Under
Period	Purchased		Paid per Share		Announced Plans		the Plan
July 1 – July 31, 2010		161	$	13.74		—		—
August 1 – August 31, 2010		434		13.70		—		—
September 1 – September 30, 2010		—		—		—		—
Total		595	$	13.71		—		—

During the third 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 $8,000 in the third quarter of 2010.

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ITEM 6. Exhibits

(a)	Exhibits:
	Exhibit (11), Statement regarding computation of per-share earnings. See Note 3 of the notes to consolidated financial statements in Part I Item 1.
	Exhibit (31.1), Certification Under Section 302 of Sarbanes-Oxley by Philip B. Flynn, Chief Executive Officer, is attached hereto.
	Exhibit (31.2), Certification Under Section 302 of Sarbanes-Oxley by Joseph B. Selner, Chief Financial Officer, is attached hereto.
	Exhibit (32), Certification by the Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of Sarbanes-Oxley, is attached hereto.
	Exhibit (101), Interactive data files pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Changes in Stockholders’ Equity, (iv) Consolidated Statements of Cash Flows, and (v) Notes to Consolidated Financial Statements tagged as blocks of text. *

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

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SIGNATURES

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

	ASSOCIATED BANC-CORP(Registrant)
Date: November 4, 2010	/s/ Philip B. Flynn
	Philip B. Flynn
	President and Chief Executive Officer
Date: November 4, 2010	/s/ Joseph B. Selner
	Joseph B. Selner
	Chief Financial Officer

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