Associated Banc-Corp (ASB) 10-Q 2013 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2013

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                    to                    

Commission file number 001-31343

Associated Banc-Corp

(Exact name of registrant as specified in its charter)

Wisconsin	39-1098068
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
433 Main Street, Green Bay, Wisconsin	54301
(Address of principal executive offices)	(Zip Code)

(920) 491-7000

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

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

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

APPLICABLE ONLY TO CORPORATE ISSUERS:

The number of shares outstanding of registrant’s common stock, par value $0.01 per share, at July 31, 2013, was 165,947,367.

ASSOCIATED BANC-CORP

TABLE OF CONTENTS

	Page No.
PART I. Financial Information
Item 1. Financial Statements (Unaudited):
Consolidated Balance Sheets — June 30, 2013 and December 31, 2012		3
Consolidated Statements of Income —Three and Six Months Ended June 30, 2013 and 2012		4
Consolidated Statements of Comprehensive Income —Three and Six Months Ended June  30, 2013 and 2012		5
Consolidated Statements of Changes in Stockholders’ Equity — Six Months Ended June  30, 2013 and 2012		6
Consolidated Statements of Cash Flows — Six Months Ended June 30, 2013 and 2012		7
Notes to Consolidated Financial Statements		8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		52
Item 3. Quantitative and Qualitative Disclosures About Market Risk		82
Item 4. Controls and Procedures		82
PART II. Other Information
Item 1. Legal Proceedings		82
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		83
Item 6. Exhibits		84
Signatures		85

2

PART I — FINANCIAL INFORMATION

ITEM 1. Financial Statements:

ASSOCIATED BANC-CORP

Consolidated Balance Sheets

	June 30,			December 31,
	2013			2012
	(Unaudited)			(Audited)
	(In Thousands, except share and per share data)
ASSETS
Cash and due from banks	$	422,779		$	563,304
Interest-bearing deposits in other financial institutions		121,390			147,434
Federal funds sold and securities purchased under agreements to resell		10,800			27,135
Investment securities held to maturity, at amortized cost		75,946			39,877
Investment securities available for sale, at fair value		4,854,319			4,926,758
Federal Home Loan Bank and Federal Reserve Bank stocks, at cost		181,008			166,774
Loans held for sale		203,576			261,410
Loans		15,746,599			15,411,022
Allowance for loan losses		(277,218	)		(297,409	)
Loans, net		15,469,381			15,113,613
Premises and equipment, net		258,903			253,958
Goodwill		929,168			929,168
Other intangible assets, net		74,612			61,176
Trading assets		49,732			70,711
Other assets		965,330			926,417
Total assets	$	23,616,944		$	23,487,735
LIABILITIES AND STOCKHOLDERS’ EQUITY
Noninterest-bearing demand deposits	$	4,259,776		$	4,759,556
Interest-bearing deposits		12,872,660			12,180,309
Total deposits		17,132,436			16,939,865
Federal funds purchased and securities sold under agreements to repurchase		545,740			750,455
Other short-term funding		2,218,760			1,576,484
Long-term funding		614,822			1,015,346
Trading liabilities		52,598			76,343
Accrued expenses and other liabilities		175,612			192,843
Total liabilities		20,739,968			20,551,336
Stockholders’ equity
Preferred equity		63,272			63,272
Common stock		1,750			1,750
Surplus		1,610,243			1,602,136
Retained earnings		1,330,737			1,281,811
Accumulated other comprehensive income (loss)		(25,015	)		48,603
Treasury stock, at cost		(104,011	)		(61,173	)
Total stockholders’ equity		2,876,976			2,936,399
Total liabilities and stockholders’ equity	$	23,616,944		$	23,487,735
Preferred shares issued		65,000			65,000
Preferred shares authorized (par value $1.00 per share)		750,000			750,000
Common shares issued		175,012,686			175,012,686
Common shares authorized (par value $0.01 per share)		250,000,000			250,000,000
Treasury shares of common stock		7,628,961			4,773,146

See accompanying notes to consolidated financial statements.

3

ITEM 1. Financial Statements Continued:

ASSOCIATED BANC-CORP

Consolidated Statements of Income

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013		2012
	(In Thousands, except per share data)
INTEREST INCOME
Interest and fees on loans	$	146,896		$	147,188		$	292,423	$	296,211
Interest and dividends on investment securities
Taxable		21,446			23,000			43,059		46,029
Tax exempt		6,785			7,135			13,750		14,409
Other interest		1,233			1,262			2,480		2,509
Total interest income		176,360			178,585			351,712		359,158
INTEREST EXPENSE
Interest on deposits		7,769			10,553			16,310		22,589
Interest on Federal funds purchased and securities sold under agreements to repurchase		333			612			743		1,379
Interest on other short-term funding		525			1,197			857		2,253
Interest on long-term funding		7,551			11,956			15,967		24,002
Total interest expense		16,178			24,318			33,877		50,223
NET INTEREST INCOME		160,182			154,267			317,835		308,935
Provision for loan losses		4,000			—			8,000		—
Net interest income after provision for loan losses		156,182			154,267			309,835		308,935
NONINTEREST INCOME
Trust service fees		11,405			10,125			22,315		19,912
Service charges on deposit accounts		17,443			16,768			34,272		34,810
Card-based and other nondeposit fees		12,591			12,084			24,541		22,963
Insurance commissions		9,631			12,912			21,394		24,502
Brokerage and annuity commissions		3,688			4,206			7,204		8,333
Mortgage banking, net		19,263			16,735			37,028		34,389
Capital market fees, net		5,074			2,673			7,657		6,389
Bank owned life insurance income		3,281			3,164			6,251		7,456
Asset gains (losses), net		(44	)		(4,984	)		792		(8,578	)
Investment securities gains, net:
Realized gains, net		34			563			334		603
Other-than-temporary impairments		—			—			—		—
Less: Non-credit portion recognized in other comprehensive income (before taxes)		—			—			—		—
Total investment securities gains, net		34			563			334		603
Other		1,944			1,705			4,522		3,618
Total noninterest income		84,310			75,951			166,310		154,397
NONINTEREST EXPENSE
Personnel expense		99,791			93,819			197,698		188,100
Occupancy		14,305			14,008			29,967		29,187
Equipment		6,462			5,719			12,629		11,187
Data processing		12,651			11,304			24,159		20,820
Business development and advertising		5,028			5,468			9,565		10,849
Other intangible asset amortization		1,011			1,049			2,022		2,098
Loan expense		3,044			2,948			6,328		5,858
Legal and professional fees		5,483			5,657			10,828		15,372
Losses other than loans		1,799			2,060			1,483		5,610
Foreclosure / OREO expense		2,302			4,343			4,724		7,705
FDIC expense		4,395			4,778			9,827		9,648
Other		13,725			14,877			27,681		29,358
Total noninterest expense		169,996			166,030			336,911		335,792
Income before income taxes		70,496			64,188			139,234		127,540
Income tax expense		22,608			20,871			43,958		41,590
Net income		47,888			43,317			95,276		85,950
Preferred stock dividends		1,300			1,300			2,600		2,600
Net income available to common equity	$	46,588		$	42,017		$	92,676	$	83,350
Earnings per common share:
Basic	$	0.28		$	0.24		$	0.55	$	0.48
Diluted	$	0.28		$	0.24		$	0.55	$	0.48
Average common shares outstanding:
Basic		166,605			172,839			167,415		173,343
Diluted		166,748			172,841			167,552		173,345

See accompanying notes to consolidated financial statements.

4

ITEM 1. Financial Statements Continued:

ASSOCIATED BANC-CORP

Consolidated Statements of Comprehensive Income

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
	($ in Thousands)
Net income	$	47,888		$	43,317		$	95,276		$	85,950
Other comprehensive income (loss), net of tax:
Investment securities available for sale:
Net unrealized gains (losses)		(111,829	)		1,305			(121,760	)		(609	)
Reclassification adjustment for net gains realized in net income		(34	)		(563	)		(334	)		(603	)
Income tax (expense) benefit		43,188			(290	)		47,138			472
Other comprehensive income (loss) on investment securities available for sale		(68,675	)		452			(74,956	)		(740	)
Defined benefit pension and postretirement obligations:
Amortization of prior service cost		17			60			35			120
Amortization of actuarial losses		1,073			640			2,145			1,280
Income tax expense		(421	)		(273	)		(842	)		(546	)
Other comprehensive income on pension and postretirement obligations		669			427			1,338			854
Derivatives used in cash flow hedging relationships:
Net unrealized losses		—			(24	)		—			(14	)
Reclassification adjustment for net losses and interest expense for interest differential on derivatives realized in net income		—			727			—			1,458
Income tax expense		—			(281	)		—			(581	)
Other comprehensive income on cash flow hedging relationships		—			422			—			863
Total other comprehensive income (loss)		(68,006	)		1,301			(73,618	)		977
Comprehensive income (loss)	$	(20,118	)	$	44,618		$	21,658		$	86,927

See accompanying notes to consolidated financial statements.

5

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, 2011	$	63,272	$	1,746	$	1,586,401	$	1,148,773		$	65,602		$	—		$	2,865,794
Comprehensive income:
Net income		—		—		—		85,950			—			—			85,950
Other comprehensive income		—		—		—		—			977			—			977
Comprehensive income																	86,927
Common stock issued:
Stock-based compensation plans, net		—		4		650		(1,009	)		—			500			145
Purchase of treasury stock		—		—		—		—			—			(31,210	)		(31,210	)
Cash dividends:
Common stock, $0.10 per share		—		—		—		(17,379	)		—			—			(17,379	)
Preferred stock		—		—		—		(2,600	)		—			—			(2,600	)
Stock-based compensation expense, net		—		—		7,939		—			—			—			7,939
Tax benefit of stock options		—		—		5		—			—			—			5
Balance, June 30, 2012	$	63,272	$	1,750	$	1,594,995	$	1,213,735		$	66,579		$	(30,710	)	$	2,909,621
Balance, December 31, 2012	$	63,272	$	1,750	$	1,602,136	$	1,281,811		$	48,603		$	(61,173	)	$	2,936,399
Comprehensive income:
Net income		—		—		—		95,276			—			—			95,276
Other comprehensive loss		—		—		—		—			(73,618	)		—			(73,618	)
Comprehensive income																	21,658
Common stock issued:
Stock-based compensation plans, net		—		—		387		(16,793	)		—			20,401			3,995
Purchase of treasury stock		—		—		—		—			—			(63,239	)		(63,239	)
Cash dividends:
Common stock, $0.16 per share		—		—		—		(26,957	)		—			—			(26,957	)
Preferred stock		—		—		—		(2,600	)		—			—			(2,600	)
Stock-based compensation expense, net		—		—		7,571		—			—			—			7,571
Tax benefit of stock options		—		—		149		—			—			—			149
Balance, June 30, 2013	$	63,272	$	1,750	$	1,610,243	$	1,330,737		$	(25,015	)	$	(104,011	)	$	2,876,976

See accompanying notes to consolidated financial statements.

6

ITEM 1. Financial Statements Continued:

ASSOCIATED BANC-CORP

Consolidated Statements of Cash Flows

(Unaudited)

	Six Months Ended June 30,
	2013			2012
	($ in Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	95,276		$	85,950
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		8,000			—
Depreciation and amortization		24,016			20,832
(Recovery of) addition to valuation allowance on mortgage servicing rights, net		(13,282	)		2,036
Amortization of mortgage servicing rights		9,191			11,775
Amortization of other intangible assets		2,022			2,098
Amortization and accretion on earning assets, funding, and other, net		26,294			30,013
Tax impact of stock based compensation		149			5
Gain on sales of investment securities, net and impairment write-downs		(334	)		(603	)
(Gain) loss on sales of assets and impairment write-downs, net		(792	)		8,578
Gain on mortgage banking activities, net		(14,808	)		(29,459	)
Mortgage loans originated and acquired for sale		(1,463,808	)		(1,301,779	)
Proceeds from sales of mortgage loans held for sale		1,525,083			1,409,805
(Increase) decrease in interest receivable		(2,581	)		4,744
Decrease in interest payable		(1,177	)		(4,601	)
Net change in other assets and other liabilities		(88	)		(3,637	)
Net cash provided by operating activities		193,161			235,757
CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in loans		(392,504	)		(857,350	)
Purchases of:
Investment securities		(947,634	)		(592,477	)
Premises, equipment, and software, net of disposals		(31,548	)		(33,063	)
FHLB stock		(28,399	)		—
Other assets		(884	)		(2,810	)
Proceeds from:
Sales of investment securities		64,055			113,752
Sale of FHLB stock		14,399			15,314
Prepayments, calls, and maturities of investment securities		775,952			882,830
Sales, prepayments, calls, and maturities of other assets		21,100			11,092
Sales of loans originated for investment		12,172			124,903
Net cash used in investing activities		(513,291	)		(337,809	)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits		192,571			136,061
Net decrease in deposits due to branch sales		—			(113,622	)
Net increase in short-term funding		437,561			138,785
Repayment of long-term funding		(400,110	)		(25,968	)
Cash dividends on common stock		(26,957	)		(17,379	)
Cash dividends on preferred stock		(2,600	)		(2,600	)
Purchase of treasury stock		(63,239	)		(31,210	)
Net cash provided by financing activities		137,226			84,067
Net decrease in cash and cash equivalents		(182,904	)		(17,985	)
Cash and cash equivalents at beginning of period		737,873			616,595
Cash and cash equivalents at end of period	$	554,969		$	598,610
Supplemental disclosures of cash flow information:
Cash paid for interest	$	34,997		$	54,812
Cash paid (received) for income taxes		20,419			(21,550	)
Loans and bank premises transferred to other real estate owned		14,716			22,536
Capitalized mortgage servicing rights		11,367			13,147

See accompanying notes to consolidated financial statements.

7

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 2012 annual report on Form 10-K, should be referred to in connection with the reading of these unaudited interim financial statements.

NOTE 1: Basis of Presentation

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the financial position, results of operations and comprehensive income, changes in stockholders’ equity, and cash flows of Associated Banc-Corp (individually referred to herein as the “Parent Company,” and together with all of its subsidiaries and affiliates, collectively referred to herein as the “Corporation”) for the periods presented, and all such adjustments are of a normal recurring nature. The consolidated financial statements include the accounts of all subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. 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 February 2013, the FASB issued an amendment requiring an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. These disclosures may be presented on the face of the income statement or in the notes to consolidated financial statements, depending upon the specific accounting guidance for the reclassification out of accumulated other comprehensive income. The amendments are effective prospectively for reporting periods beginning after December 15, 2012 with early adoption permitted. The Corporation adopted the accounting standard during the first quarter of 2013, as required, with no material impact on its results of operations, financial position, or liquidity. See Note 16 for the required new disclosures on accumulated other comprehensive income.

In July 2012, the FASB issued amendments intended to simplify how entities test the decline in the realizable value (impairment) of indefinite-lived intangible assets other than goodwill. The amendments permit an organization to make a qualitative evaluation about the likelihood of impairment of an indefinite-lived intangible asset to determine whether it should apply the quantitative test and calculate the fair value of the indefinite-lived intangible asset. The amendments do not change how an organization measures an impairment loss. Therefore, it is not expected to affect the information reported to users of the financial statements. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. The Corporation adopted the accounting standard during the first quarter of 2013, as required, with no material impact on its results of operations, financial position, or liquidity.

In December 2011, the FASB issued amendments to require an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. This information will enable users of an entity’s financial statements to evaluate the effect or potential effect of netting arrangements with certain financial instruments and derivative instruments. The amendments are effective for annual reporting periods beginning on or after January 1, 2013, with retrospective application to the disclosures of all comparative periods presented. The Corporation adopted the accounting standard during the first quarter of 2013, as required, with no material impact on its results of operations, financial position, or liquidity. See Note 11 for the required new disclosures on balance sheet offsetting.

8

In September 2011, the FASB issued amendments intended to simplify how entities test goodwill for impairment. The amendments permit an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. Under the guidance, an entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying value. The amendments are effective for interim and annual periods beginning after December 15, 2011, with early adoption permitted. The Corporation adopted the accounting standard as of January 1, 2012, as required, with no material impact on its results of operations, financial position, or liquidity. See Note 7 for required disclosures on goodwill.

NOTE 3: Earnings Per Common Share

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

	For the Three Months Ended						For the Six Months Ended
	June 30,						June 30,
	2013			2012			2013			2012
	(In Thousands, except per share data)
Net income	$	47,888		$	43,317		$	95,276		$	85,950
Preferred stock dividends		1,300			1,300			2,600			2,600
Net income available to common equity	$	46,588		$	42,017		$	92,676		$	83,350
Common shareholder dividends		(13,305	)		(8,604	)		(26,682	)		(17,299	)
Unvested share-based payment awards		(168	)		(40	)		(275	)		(80	)
Undistributed earnings	$	33,115		$	33,373		$	65,719		$	65,971
Undistributed earnings allocated to common shareholders		32,864			33,222			65,239			65,665
Undistributed earnings allocated to unvested share-based payment awards		251			151			480			306
Undistributed earnings	$	33,115		$	33,373		$	65,719		$	65,971
Basic
Distributed earnings to common shareholders	$	13,305		$	8,604		$	26,682		$	17,299
Undistributed earnings allocated to common shareholders		32,864			33,222			65,239			65,665
Total common shareholders earnings, basic	$	46,169		$	41,826		$	91,921		$	82,964
Diluted
Distributed earnings to common shareholders	$	13,305		$	8,604		$	26,682		$	17,299
Undistributed earnings allocated to common shareholders		32,864			33,222			65,239			65,665
Total common shareholders earnings, diluted	$	46,169		$	41,826		$	91,921		$	82,964
Weighted average common shares outstanding		166,605			172,839			167,415			173,343
Effect of dilutive common stock awards		143			2			137			2
Diluted weighted average common shares outstanding		166,748			172,841			167,552			173,345
Basic earnings per common share	$	0.28		$	0.24		$	0.55		$	0.48
Diluted earnings per common share	$	0.28		$	0.24		$	0.55		$	0.48

Options to purchase approximately 3 million shares were outstanding for both the three and six months ended June 30, 2013, but excluded from the calculation of diluted earnings per common share as the effect would have been anti-dilutive. Options to purchase approximately 9 million and 6 million shares were outstanding for the three and six months ended June 30, 2012, respectively, but excluded from the calculation of diluted earnings per common share as the effect would have been anti-dilutive.

9

NOTE 4: Stock-Based Compensation

At June 30, 2013, the Corporation had one stock-based compensation plan. All stock awards granted under this plan have an exercise price that is equal to the closing price of the Corporation’s stock on the date the awards were granted.

The Corporation may issue restricted common stock and restricted common stock units to certain key employees (collectively referred to as “restricted stock awards”). The shares of restricted stock are restricted as to transfer, but are not restricted as to dividend payment or voting rights. Restricted stock units receive dividend equivalents but do not have voting rights. The transfer restrictions lapse over one, two, three, or four years, depending upon whether the awards are service-based or performance-based. Service-based awards are contingent upon continued employment, and performance-based awards are based on earnings per share performance goals and continued employment.

The fair value of stock options granted is estimated on the date of grant using a Black-Scholes option pricing model, while the fair value of restricted stock awards is their fair market value on the date of grant. The fair values of stock options and restricted stock awards are amortized as compensation expense on a straight-line basis over the vesting period of the grants. 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 and implied volatility of the Corporation’s stock. The following assumptions were used in estimating the fair value for options granted in the first six months of 2013 and full year 2012.

	2013			2012
Dividend yield		2.00	%		2.00	%
Risk-free interest rate		0.99	%		1.20	%
Weighted average expected volatility		34.35	%		48.94	%
Weighted average expected life		6 years			6 years
Weighted average per share fair value of options	$	3.80		$	5.03

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.

10

A summary of the Corporation’s stock option activity for the year ended December 31, 2012 and for the six months ended June 30, 2013, is presented below.

						Weighted Average		Aggregate Intrinsic
				Weighted Average		Remaining		Value
Stock Options	Shares			Exercise Price		Contractual Term		(000s)
Outstanding at December 31, 2011		7,055,274		$	21.99
Granted		3,060,519			12.97
Exercised		(11,120	)		13.16
Forfeited or expired		(1,464,115	)		21.56
Outstanding at December 31, 2012		8,640,558		$	18.88		6.40	$	570
Options exercisable at December 31, 2012		4,603,963		$	23.80		4.37		43
Outstanding at December 31, 2012		8,640,558		$	18.88
Granted		1,020,979			14.02
Exercised		(244,407	)		13.45
Forfeited or expired		(701,766	)		21.98
Outstanding at June 30, 2013		8,715,364		$	18.21		6.55	$	12,164
Options exercisable at June 30, 2013		5,432,165		$	21.08		5.21		5,293

The following table summarizes information about the Corporation’s nonvested stock option activity for the year ended December 31, 2012, and for the six months ended June 30, 2013.

				Weighted Average
Stock Options	Shares			Grant Date Fair Value
Nonvested at December 31, 2011		2,431,339		$	5.11
Granted		3,060,519			5.03
Vested		(1,097,571	)		4.88
Forfeited		(357,692	)		5.12
Nonvested at December 31, 2012		4,036,595		$	5.11
Granted		1,020,979			3.80
Vested		(1,621,271	)		5.12
Forfeited		(153,104	)		5.18
Nonvested at June 30, 2013		3,283,199		$	4.70

For the six months ended June 30, 2013 and for the year ended December 31, 2012, the intrinsic value of stock options exercised was immaterial. (Intrinsic value represents the amount by which the fair market value of the underlying stock exceeds the exercise price of the stock option.) The total fair value of stock options that vested was $8 million for the first six months of 2013 and $5 million for the year ended December 31, 2012. For both the six months ended June 30, 2013 and 2012, the Corporation recognized compensation expense of $4 million for the vesting of stock options. For the full year 2012, the Corporation recognized compensation expense of $9 million for the vesting of stock options. At June 30, 2013, the Corporation had $12 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 2015.

11

The following table summarizes information about the Corporation’s restricted stock awards activity for the year ended December 31, 2012, and for the six months ended June 30, 2013.

				Weighted Average
Restricted Stock	Shares			Grant Date Fair Value
Outstanding at December 31, 2011		1,013,765		$	13.79
Granted		506,258			13.00
Vested		(533,014	)		13.38
Forfeited		(54,584	)		13.73
Outstanding at December 31, 2012		932,425		$	13.60
Granted		1,244,820			14.03
Vested		(606,199	)		13.72
Forfeited		(27,713	)		13.95
Outstanding at June 30, 2013		1,543,333		$	13.89

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 2013 and 2012 to executive officers will vest ratably over a three year period. Restricted stock awards granted to non-executives during 2013 will vest ratably over a four year period, while restricted stock awards granted to non-executives during 2012 will vest ratably over a three year period. Expense for restricted stock awards of approximately $4 million was recognized for both the six months ended June 30, 2013 and 2012. The Corporation recognized approximately $7 million of expense for restricted stock awards for the full year 2012. The Corporation had $17 million of unrecognized compensation costs related to restricted stock awards at June 30, 2013 that is expected to be recognized over the remaining requisite service periods that extend predominantly through fourth quarter 2015.

The Corporation issues shares from treasury, when available, or new shares upon the exercise of stock options or the granting of restricted stock awards. The Board of Directors has authorized management to repurchase shares of the Corporation’s common stock 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 and investment opportunities, capital levels, growth prospects, and regulatory constraints. Such repurchases may occur from time to time in open market purchases, block transactions, private transactions, accelerated share repurchase programs, or similar facilities.

12

NOTE 5: Investment Securities

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

			Gross		Gross
	Amortized		unrealized		unrealized
June 30, 2013:	cost		gains		losses			Fair value
	($ in Thousands)
Investment securities available for sale:
U.S. Treasury securities	$	1,002	$	2	$	—		$	1,004
Obligations of state and political subdivisions (municipal securities)		701,536		29,903		(1,206	)		730,233
Residential mortgage-related securities:
Government-sponsored enterprise (“GSE”)		3,600,772		64,064		(59,806	)		3,605,030
Private-label		3,403		37		(1	)		3,439
GSE commercial mortgage-related securities		446,807		1,744		(17,299	)		431,252
Other securities (debt and equity)		84,113		746		(1,498	)		83,361
Total investment securities available for sale	$	4,837,633	$	96,496	$	(79,810	)	$	4,854,319
Investment securities held to maturity:
Obligations of state and political subdivisions (municipal securities)	$	75,946	$	—	$	(4,448	)	$	71,498
Total investment securities held to maturity	$	75,946	$	—	$	(4,448	)	$	71,498

			Gross		Gross
	Amortized		unrealized		unrealized
December 31, 2012:	cost		gains		losses			Fair value
	($ in Thousands)
Investment securities available for sale:
U.S. Treasury securities	$	1,003	$	1	$	—		$	1,004
Obligations of state and political subdivisions (municipal securities)		755,644		45,599		(55	)		801,188
Residential mortgage-related securities:
GSE		3,708,287		93,595		(3,727	)		3,798,155
Private-label		6,002		147		—			6,149
GSE commercial mortgage-related securities		226,420		2,809		(1,063	)		228,166
Other securities (debt and equity)		90,622		1,549		(75	)		92,096
Total investment securities available for sale	$	4,787,978	$	143,700	$	(4,920	)	$	4,926,758
Investment securities held to maturity:
Obligations of state and political subdivisions (municipal securities)	$	39,877	$	98	$	(296	)	$	39,679
Total investment securities held to maturity	$	39,877	$	98	$	(296	)	$	39,679

13

The amortized cost and fair values of investment securities available for sale and held to maturity at June 30, 2013, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Available for Sale				Held to Maturity
($ in Thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	51,411	$	51,364	$	—	$	—
Due after one year through five years		218,135		226,577		—		—
Due after five years through ten years		481,965		500,463		26,492		25,262
Due after ten years		35,122		36,149		49,454		46,236
Total debt securities		786,633		814,553		75,946		71,498
Residential mortgage-related securities:
GSE		3,600,772		3,605,030		—		—
Private label		3,403		3,439		—		—
GSE commercial mortgage-related securities		446,807		431,252		—		—
Equity securities		18		45		—		—
Total investment securities	$	4,837,633	$	4,854,319	$	75,946	$	71,498

The following represents gross unrealized losses and the related fair value of investment securities available for sale and held to maturity, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at June 30, 2013.

	Less than 12 months							12 months or more							Total
	Number of		Unrealized			Fair		Number of		Unrealized			Fair		Unrealized			Fair
June 30, 2013:	Securities		Losses			Value		Securities		Losses			Value		Losses			Value
			($ in Thousands)
Investment securities available for sale:
Obligations of state and political subdivisions (municipal securities)		101	$	(1,188	)	$	40,506		2	$	(18	)	$	511	$	(1,206	)	$	41,017
Residential mortgage-related securities:
GSE		94		(59,806	)		2,011,631		—		—			—		(59,806	)		2,011,631
Private-label		2		(1	)		30		1		—			42		(1	)		72
GSE commercial mortgage-related securities		15		(17,299	)		410,410		—		—			—		(17,299	)		410,410
Other debt securities		4		(1,453	)		5,042		1		(45	)		142		(1,498	)		5,184
Total			$	(79,747	)	$	2,467,619			$	(63	)	$	695	$	(79,810	)	$	2,468,314
Investment securities held to maturity:
Obligations of state and political subdivisions (municipal securities)		160	$	(4,448	)	$	69,951		—	$	—		$	—	$	(4,448	)	$	69,951
Total			$	(4,448	)	$	69,951			$	—		$	—	$	(4,448	)	$	69,951

The Corporation reviews the investment securities portfolio on a quarterly basis to monitor its exposure to other-than-temporary impairment. A determination as to whether a security’s decline in fair value is other-than-temporary takes into consideration numerous factors and the relative significance of any single factor can vary by security. Some factors the Corporation may consider in the other-than-temporary impairment analysis include, the length of time and extent to which the security has been in an unrealized loss position, changes in security ratings, financial condition and near-term prospects of the issuer, as well as security and industry specific economic conditions. 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.

14

Based on the Corporation’s evaluation, management does not believe any unrealized loss at June 30, 2013 represents an other-than-temporary impairment as these unrealized losses are primarily attributable to changes in interest rates and the current market conditions, and not credit deterioration. The unrealized losses reported for 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”). The unrealized losses reported for commercial mortgage-related securities relate to government agency mortgage-related securities. At June 30, 2013, the unrealized loss position of 12 months or more on other debt securities was attributable to a pooled trust preferred debt security. The Corporation currently does not intend to sell nor does it believe that it will be required to sell the securities contained in the above unrealized losses table before recovery of their amortized cost basis.

The following is a summary of the credit loss portion of other-than-temporary impairment recognized in earnings on debt securities for 2012 and the six months ended June 30, 2013, respectively.

	Non-agency
	Mortgage- Related			Trust Preferred
	Securities			Debt Securities			Total
	($ in Thousands)
Balance of credit-related other-than-temporary impairment at December 31, 2011	$	(17,558	)	$	(10,835	)	$	(28,393	)
Reduction due to credit impaired securities sold		17,026			4,499			21,525
Balance of credit-related other-than-temporary impairment at December 31, 2012	$	(532	)	$	(6,336	)	. $	(6,868	)
Reduction due to credit impaired securities sold		532			—			532
Balance of credit-related other-than-temporary impairment at June 30, 2013	$	—		$	(6,336	)	. $	(6,336	)

For comparative purposes, the following represents gross unrealized losses and the related fair value of investment securities available for sale and held to maturity, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2012.

	Less than 12 months							12 months or more							Total
	Number							Number
	of		Unrealized					of		Unrealized					Unrealized
December 31, 2012:	Securities		Losses			Fair Value		Securities		Losses			Fair Value		Losses			Fair Value
			($ in Thousands)
Investment securities available for sale:
Obligations of state and political subdivisions (municipal securities)		15	$	(42	)	$	5,065		1	$	(13	)	$	348	$	(55	)	$	5,413
Residential mortgage-related securities:
GSE		30		(3,727	)		892,964		—		—			—		(3,727	)		892,964
Private label		—		—			—		1		—			50		—			50
GSE commercial mortgage-related securities		2		(1,063	)		102,474		—		—			—		(1,063	)		102,474
Other debt securities		—		—			—		1		(75	)		111		(75	)		111
Total			$	(4,832	)	$	1,000,503			$	(88	)	$	509	$	(4,920	)	$	1,001,012
Investment securities held to maturity:
Obligations of state and political subdivisions (municipal securities)		56	$	(296	)	$	28,265		—	$	—		$	—	$	(296	)	$	28,265
Total			$	(296	)	$	28,265			$	—		$	—	$	(296	)	$	28,265

15

Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank Stocks: The Corporation is required to maintain Federal Reserve stock and FHLB stock as a member of both the Federal Reserve System and the FHLB, and in amounts as required by these institutions. These equity securities are “restricted” in that they can only be sold back to the respective institutions or another member institution at par. Therefore, they are less liquid than other marketable equity securities and their fair value is equal to amortized cost. At June 30, 2013 and December 31, 2012, the Corporation had FHLB stock of $110 million and $96 million, respectively. The Corporation had Federal Reserve Bank stock of $71 million at both June 30, 2013 and December 31, 2012.

The Corporation reviewed these securities for impairment, 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 2012 or the first six months of 2013. The FHLB of Chicago initiated tender offers for certain of its shares during the first quarter of 2013, whereby the FHLB would repurchase its shares at par. The Corporation participated in the tender offers and reduced its equity holdings in the FHLB of Chicago by $14 million during the first quarter of 2013. Based on the Corporation’s periodic review of FHLB stock required member holdings (which is based on asset size and other criteria), the Corporation purchased $28 million of additional equity holdings in the FHLB of Chicago during the second quarter of 2013.

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

The period end loan composition was as follows.

	June 30,		December 31,
	2013		2012
	($ in Thousands)
Commercial and industrial	$	4,752,838	$	4,502,021
Commercial real estate—owner occupied		1,174,866		1,219,747
Lease financing		55,084		64,196
Commercial and business lending		5,982,788		5,785,964
Commercial real estate—investor		3,010,992		2,906,759
Real estate construction		800,569		655,381
Commercial real estate lending		3,811,561		3,562,140
Total commercial		9,794,349		9,348,104
Home equity		1,986,233		2,219,494
Installment		434,029		466,727
Residential mortgage		3,531,988		3,376,697
Total consumer		5,952,250		6,062,918
Total loans	$	15,746,599	$	15,411,022

16

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

	June 30,			December 31,
	2013			2012
	($ in Thousands)
Balance at beginning of period	$	297,409		$	378,151
Provision for loan losses		8,000			3,000
Charge offs		(49,032	)		(117,046	)
Recoveries		20,841			33,304
Net charge offs		(28,191	)		(83,742	)
Balance at end of period	$	277,218		$	297,409

The level of the allowance for loan losses represents management’s estimate of an amount appropriate to provide for probable credit losses in the loan portfolio at the balance sheet date. In general, the change in the allowance for loan losses is a function of a number of factors, including but not limited to changes in the loan portfolio, net charge offs, trends in past due and impaired loans, and the level of potential problem loans. Management considers the allowance for loan losses a critical accounting policy, as assessing these numerous factors involves significant judgment.

A summary of the changes in the allowance for loan losses by portfolio segment for the six months ended June 30, 2013, was as follows.

$ in Thousands	Commercial and industrial			Commercial real estate - owner occupied			Lease financing			Commercial real estate - investor			Real estate construction			Home equity			Installment			Residential mortgage			Total
Balance at Dec 31, 2012	$	97,852		$	27,389		$	3,024		$	63,181		$	20,741		$	56,826		$	4,299		$	24,097		$	297,409
Provision for loan losses		12,848			(3,226	)		(306	)		3,276			3,289			(12,422	)		(995	)		5,536			8,000
Charge offs		(14,610	)		(3,271	)		(206	)		(7,117	)		(2,419	)		(13,547	)		(745	)		(7,117	)		(49,032	)
Recoveries		12,437			179			202			3,955			1,122			1,710			502			734			20,841
Balance at Jun 30, 2013	$	108,527		$	21,071		$	2,714		$	63,295		$	22,733		$	32,567		$	3,061		$	23,250		$	277,218
Allowance for loan losses:
Ending balance impaired loans individually evaluated for impairment	$	4,783		$	576		$	—		$	3,205		$	315		$	138		$	—		$	336		$	9,353
Ending balance impaired loans collectively evaluated for impairment	$	6,240		$	2,535		$	3		$	4,591		$	2,824		$	14,418		$	735		$	12,125		$	43,471
Total impaired loans	$	11,023		$	3,111		$	3		$	7,796		$	3,139		$	14,556		$	735		$	12,461		$	52,824
Ending balance all other loans collectively evaluated for impairment	$	97,504		$	17,960		$	2,711		$	55,499		$	19,594		$	18,011		$	2,326		$	10,789		$	224,394
Total	$	108,527		$	21,071		$	2,714		$	63,295		$	22,733		$	32,567		$	3,061		$	23,250		$	277,218
Loans:
Ending balance impaired loans individually evaluated for impairment	$	18,030		$	17,821		$	—		$	53,508		$	17,222		$	1,052		$	—		$	9,880		$	117,513
Ending balance impaired loans collectively evaluated for impairment	$	43,242		$	20,518		$	72		$	44,571		$	9,562		$	37,015		$	2,103		$	61,963		$	219,046
Total impaired loans	$	61,272		$	38,339		$	72		$	98,079		$	26,784		$	38,067		$	2,103		$	71,843		$	336,559
Ending balance all other loans collectively evaluated for impairment	$	4,691,566		$	1,136,527		$	55,012		$	2,912,913		$	773,785		$	1,948,166		$	431,926		$	3,460,145		$	15,410,040
Total	$	4,752,838		$	1,174,866		$	55,084		$	3,010,992		$	800,569		$	1,986,233		$	434,029		$	3,531,988		$	15,746,599

17

The allocation methodology used by the Corporation includes allocations for specifically identified impaired loans and loss factor allocations (used for both criticized and non-criticized loan categories), with a component primarily based on historical loss rates and a component primarily based on other qualitative factors. Management allocates the allowance for loan losses by pools of risk within each loan portfolio. The allocation of the allowance for loan losses by loan portfolio is made for analytical purposes and is not necessarily indicative of the trend of future loan losses in any particular category. The total allowance for loan losses is available to absorb losses from any segment of the loan portfolio.

For comparison purposes, a summary of the changes in the allowance for loan losses by portfolio segment for the year ended December 31, 2012, was as follows.

$ in Thousands	Commercial and industrial			Commercial real estate - owner occupied			Lease financing			Commercial real estate - investor			Real estate construction			Home equity			Installment			Residential mortgage			Total
Balance at Dec 31, 2011	$	124,374		$	36,200		$	2,567		$	86,689		$	21,327		$	70,144		$	6,623		$	30,227		$	378,151
Provision for loan losses		(1,645	)		(5,184	)		(645	)		(14,304	)		873			16,909			(501	)		7,497			3,000
Charge offs		(43,240	)		(4,080	)		(797	)		(14,000	)		(3,588	)		(34,125	)		(3,057	)		(14,159	)		(117,046	)
Recoveries		18,363			453			1,899			4,796			2,129			3,898			1,234			532			33,304
Balance at Dec 31, 2012	$	97,852		$	27,389		$	3,024		$	63,181		$	20,741		$	56,826		$	4,299		$	24,097		$	297,409
Allowance for loan losses:
Ending balance impaired loans individually evaluated for impairment	$	8,790		$	654		$	—		$	5,241		$	1,079		$	868		$	—		$	155		$	16,787
Ending balance impaired loans collectively evaluated for impairment	$	4,951		$	3,157		$	—		$	4,446		$	2,332		$	23,712		$	1,155		$	12,751		$	52,504
Total impaired loans	$	13,741		$	3,811		$	—		$	9,687		$	3,411		$	24,580		$	1,155		$	12,906		$	69,291
Ending balance all other loans collectively evaluated for impairment	$	84,111		$	23,578		$	3,024		$	53,494		$	17,330		$	32,246		$	3,144		$	11,191		$	228,118
Total	$	97,852		$	27,389		$	3,024		$	63,181		$	20,741		$	56,826		$	4,299		$	24,097		$	297,409
Loans:
Ending balance impaired loans individually evaluated for impairment	$	27,213		$	16,602		$	3,024		$	48,894		$	20,794		$	4,671		$	—		$	11,330		$	132,528
Ending balance impaired loans collectively evaluated for impairment	$	40,109		$	21,504		$	7		$	51,453		$	11,038		$	44,512		$	2,491		$	70,313		$	241,427
Total impaired loans	$	67,322		$	38,106		$	3,031		$	100,347		$	31,832		$	49,183		$	2,491		$	81,643		$	373,955
Ending balance all other loans collectively evaluated for impairment	$	4,434,699		$	1,181,641		$	61,165		$	2,806,412		$	623,549		$	2,170,311		$	464,236		$	3,295,054		$	15,037,067
Total	$	4,502,021		$	1,219,747		$	64,196		$	2,906,759		$	655,381		$	2,219,494		$	466,727		$	3,376,697		$	15,411,022

18

The following table presents commercial loans by credit quality indicator at June 30, 2013.

	Pass		Special Mention		Potential Problem		Impaired		Total
	($ in Thousands)
Commercial and industrial	$	4,459,010	$	105,174	$	127,382	$	61,272	$	4,752,838
Commercial real estate—owner occupied		997,132		64,321		75,074		38,339		1,174,866
Lease financing		54,222		511		279		72		55,084
Commercial and business lending		5,510,364		170,006		202,735		99,683		5,982,788
Commercial real estate—investor		2,773,560		50,011		89,342		98,079		3,010,992
Real estate construction		761,487		3,114		9,184		26,784		800,569
Commercial real estate lending		3,535,047		53,125		98,526		124,863		3,811,561
Total commercial	$	9,045,411	$	223,131	$	301,261	$	224,546	$	9,794,349
The following table presents commercial loans by credit quality indicator at December 31, 2012.
	Pass		Special Mention		Potential Problem		Impaired		Total
	($ in Thousands)
Commercial and industrial	$	4,208,478	$	97,787	$	128,434	$	67,322	$	4,502,021
Commercial real estate—owner occupied		1,030,632		51,417		99,592		38,106		1,219,747
Lease financing		58,099		2,802		264		3,031		64,196
Commercial and business lending		5,297,209		152,006		228,290		108,459		5,785,964
Commercial real estate—investor		2,634,035		65,309		107,068		100,347		2,906,759
Real estate construction		603,481		6,976		13,092		31,832		655,381
Commercial real estate lending		3,237,516		72,285		120,160		132,179		3,562,140
Total commercial	$	8,534,725	$	224,291	$	348,450	$	240,638	$	9,348,104

The following table presents consumer loans by credit quality indicator at June 30, 2013.

	Performing		30-89 Days Past Due		Potential Problem		Impaired		Total
	($ in Thousands)
Home equity	$	1,933,246	$	12,305	$	2,615	$	38,067	$	1,986,233
Installment		430,409		1,434		83		2,103		434,029
Residential mortgage		3,444,308		9,920		5,917		71,843		3,531,988
Total consumer	$	5,807,963	$	23,659	$	8,615	$	112,013	$	5,952,250
The following table presents consumer loans by credit quality indicator at December 31, 2012.
	Performing		30-89 Days Past Due		Potential Problem		Impaired		Total
	($ in Thousands)
Home equity	$	2,153,103	$	13,538	$	3,670	$	49,183	$	2,219,494
Installment		462,016		2,109		111		2,491		466,727
Residential mortgage		3,276,889		9,403		8,762		81,643		3,376,697
Total consumer	$	5,892,008	$	25,050	$	12,543	$	133,317	$	6,062,918

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

For commercial loans, management has determined the pass credit quality indicator to include credits that exhibit acceptable financial statements, cash flow, and leverage. If any risk exists, it is mitigated by the loan structure, collateral, monitoring, or control. For consumer loans, performing loans include credits that are performing in accordance with the original contractual terms. Special

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

20

The following table presents loans by past due status at June 30, 2013.

	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due *		Total Past Due		Current		Total
	($ in Thousands)
Accruing loans
Commercial and industrial	$	3,718	$	4,798	$	147	$	8,663	$	4,713,873	$	4,722,536
Commercial real estate—owner occupied		1,462		6,643		—		8,105		1,142,758		1,150,863
Lease financing		57		—		—		57		54,955		55,012
Commercial and business lending		5,237		11,441		147		16,825		5,911,586		5,928,411
Commercial real estate—investor		3,797		14,472		622		18,891		2,931,321		2,950,212
Real estate construction		541		256		—		797		778,353		779,150
Commercial real estate lending		4,338		14,728		622		19,688		3,709,674		3,729,362
Total commercial		9,575		26,169		769		36,513		9,621,260		9,657,773
Home equity		9,871		2,434		—		12,305		1,945,794		1,958,099
Installment		1,066		368		779		2,213		430,283		432,496
Residential mortgage		8,756		1,164		—		9,920		3,470,818		3,480,738
Total consumer		19,693		3,966		779		24,438		5,846,895		5,871,333
Total accruing loans	$	29,268	$	30,135	$	1,548	$	60,951	$	15,468,155	$	15,529,106
Nonaccrual loans
Commercial and industrial	$	2,887	$	3,098	$	11,560	$	17,545	$	12,757	$	30,302
Commercial real estate—owner occupied		1,148		1,037		7,552		9,737		14,266		24,003
Lease financing		—		—		72		72		—		72
Commercial and business lending		4,035		4,135		19,184		27,354		27,023		54,377
Commercial real estate—investor		5,120		1,658		37,590		44,368		16,412		60,780
Real estate construction		—		2,567		5,978		8,545		12,874		21,419
Commercial real estate lending		5,120		4,225		43,568		52,913		29,286		82,199
Total commercial		9,155		8,360		62,752		80,267		56,309		136,576
Home equity		1,721		1,572		16,974		20,267		7,867		28,134
Installment		122		113		417		652		881		1,533
Residential mortgage		3,045		4,222		30,854		38,121		13,129		51,250
Total consumer		4,888		5,907		48,245		59,040		21,877		80,917
Total nonaccrual loans	$	14,043	$	14,267	$	110,997	$	139,307	$	78,186	$	217,493
Total loans
Commercial and industrial	$	6,605	$	7,896	$	11,707	$	26,208	$	4,726,630	$	4,752,838
Commercial real estate—owner occupied		2,610		7,680		7,552		17,842		1,157,024		1,174,866
Lease financing		57		—		72		129		54,955		55,084
Commercial and business lending		9,272		15,576		19,331		44,179		5,938,609		5,982,788
Commercial real estate—investor		8,917		16,130		38,212		63,259		2,947,733		3,010,992
Real estate construction		541		2,823		5,978		9,342		791,227		800,569
Commercial real estate lending		9,458		18,953		44,190		72,601		3,738,960		3,811,561
Total commercial		18,730		34,529		63,521		116,780		9,677,569		9,794,349
Home equity		11,592		4,006		16,974		32,572		1,953,661		1,986,233
Installment		1,188		481		1,196		2,865		431,164		434,029
Residential mortgage		11,801		5,386		30,854		48,041		3,483,947		3,531,988
Total consumer		24,581		9,873		49,024		83,478		5,868,772		5,952,250
Total loans	$	43,311	$	44,402	$	112,545	$	200,258	$	15,546,341	$	15,746,599

* The recorded investment in loans past due 90 days or more and still accruing totaled $2 million at June 30, 2013 (the same as the reported balances for the accruing loans noted above).

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The following table presents loans by past due status at December 31, 2012.

	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due *		Total Past Due		Current		Total
	($ in Thousands)
Accruing loans
Commercial and industrial	$	9,557	$	1,782	$	79	$	11,418	$	4,451,421	$	4,462,839
Commercial real estate—owner occupied		10,420		633		308		11,361		1,184,132		1,195,493
Lease financing		—		12		—		12		61,153		61,165
Commercial and business lending		19,977		2,427		387		22,791		5,696,706		5,719,497
Commercial real estate—investor		8,424		5,048		366		13,838		2,834,234		2,848,072
Real estate construction		1,628		1,527		283		3,438		624,641		628,079
Commercial real estate lending		10,052		6,575		649		17,276		3,458,875		3,476,151
Total commercial		30,029		9,002		1,036		40,067		9,155,581		9,195,648
Home equity		10,151		3,387		96		13,634		2,166,645		2,180,279
Installment		1,300		809		1,013		3,122		461,767		464,889
Residential mortgage		8,473		930		144		9,547		3,307,791		3,317,338
Total consumer		19,924		5,126		1,253		26,303		5,936,203		5,962,506
Total accruing loans	$	49,953	$	14,128	$	2,289	$	66,370	$	15,091,784	$	15,158,154
Nonaccrual loans
Commercial and industrial	$	8,559	$	791	$	11,962	$	21,312	$	17,870	$	39,182
Commercial real estate—owner occupied		1,489		1,749		11,819		15,057		9,197		24,254
Lease financing		15		—		9		24		3,007		3,031
Commercial and business lending		10,063		2,540		23,790		36,393		30,074		66,467
Commercial real estate—investor		197		3,072		30,928		34,197		24,490		58,687
Real estate construction		16		—		9,639		9,655		17,647		27,302
Commercial real estate lending		213		3,072		40,567		43,852		42,137		85,989
Total commercial		10,276		5,612		64,357		80,245		72,211		152,456
Home equity		1,456		2,518		28,474		32,448		6,767		39,215
Installment		153		141		586		880		958		1,838
Residential mortgage		2,135		4,321		38,739		45,195		14,164		59,359
Total consumer		3,744		6,980		67,799		78,523		21,889		100,412
Total nonaccrual loans	$	14,020	$	12,592	$	132,156	$	158,768	$	94,100	$	252,868
Total loans
Commercial and industrial	$	18,116	$	2,573	$	12,041	$	32,730	$	4,469,291	$	4,502,021
Commercial real estate—owner occupied		11,909		2,382		12,127		26,418		1,193,329		1,219,747
Lease financing		15		12		9		36		64,160		64,196
Commercial and business lending		30,040		4,967		24,177		59,184		5,726,780		5,785,964
Commercial real estate—investor		8,621		8,120		31,294		48,035		2,858,724		2,906,759
Real estate construction		1,644		1,527		9,922		13,093		642,288		655,381
Commercial real estate lending		10,265		9,647		41,216		61,128		3,501,012		3,562,140
Total commercial		40,305		14,614		65,393		120,312		9,227,792		9,348,104
Home equity		11,607		5,905		28,570		46,082		2,173,412		2,219,494
Installment		1,453		950		1,599		4,002		462,725		466,727
Residential mortgage		10,608		5,251		38,883		54,742		3,321,955		3,376,697
Total consumer		23,668		12,106		69,052		104,826		5,958,092		6,062,918
Total loans	$	63,973	$	26,720	$	134,445	$	225,138	$	15,185,884	$	15,411,022

* The recorded investment in loans past due 90 days or more and still accruing totaled $2 million at December 31, 2012 (the same as the reported balances for the accruing loans noted above).

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The following table presents impaired loans at June 30, 2013.

	Recorded Investment		Unpaid Principal Balance		Related Allowance		YTD Average Recorded Investment		YTD Interest Income Recognized*
	($ in Thousands)
Loans with a related allowance
Commercial and industrial	$	54,100	$	63,331	$	11,023	$	57,272	$	827
Commercial real estate—owner occupied		23,890		26,742		3,111		25,362		440
Lease financing		72		72		3		99		—
Commercial and business lending		78,062		90,145		14,137		82,733		1,267
Commercial real estate—investor		67,040		78,864		7,796		68,667		1,052
Real estate construction		11,956		16,376		3,139		12,565		156
Commercial real estate lending		78,996		95,240		10,935		81,232		1,208
Total commercial		157,058		185,385		25,072		163,965		2,475
Home equity		37,770		44,686		14,556		39,376		709
Installment		2,103		2,482		735		2,226		57
Residential mortgage		63,961		75,150		12,461		65,713		856
Total consumer		103,834		122,318		27,752		107,315		1,622
Total loans	$	260,892	$	307,703	$	52,824	$	271,280	$	4,097
Loans with no related allowance
Commercial and industrial	$	7,172	$	14,060	$	—	$	8,259	$	41
Commercial real estate—owner occupied		14,449		16,862		—		14,694		45
Commercial and business lending		21,621		30,922		—		22,953		86
Commercial real estate—investor		31,039		43,825		—		33,716		124
Real estate construction		14,828		20,718		—		15,249		—
Commercial real estate lending		45,867		64,543		—		48,965		124
Total commercial		67,488		95,465		—		71,918		210
Home equity		297		333		—		322		3
Installment		—		—		—		—		—
Residential mortgage		7,882		9,602		—		7,870		112
Total consumer		8,179		9,935		—		8,192		115
Total loans	$	75,667	$	105,400	$	—	$	80,110	$	325
Total
Commercial and industrial	$	61,272	$	77,391	$	11,023	$	65,531	$	868
Commercial real estate—owner occupied		38,339		43,604		3,111		40,056		485
Lease financing		72		72		3		99		—
Commercial and business lending		99,683		121,067		14,137		105,686		1,353
Commercial real estate—investor		98,079		122,689		7,796		102,383		1,176
Real estate construction		26,784		37,094		3,139		27,814		156
Commercial real estate lending		124,863		159,783		10,935		130,197		1,332
Total commercial		224,546		280,850		25,072		235,883		2,685
Home equity		38,067		45,019		14,556		39,698		712
Installment		2,103		2,482		735		2,226		57
Residential mortgage		71,843		84,752		12,461		73,583		968
Total consumer		112,013		132,253		27,752		115,507		1,737
Total loans	$	336,559	$	413,103	$	52,824	$	351,390	$	4,422

* Interest income recognized included $3 million of interest income recognized on accruing restructured loans for the six months ended June 30, 2013.

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The following table presents impaired loans at December 31, 2012.

	Recorded Investment		Unpaid Principal Balance		Related Allowance		YTD Average Recorded Investment		YTD Interest Income Recognized*
	($ in Thousands)
Loans with a related allowance
Commercial and industrial	$	57,985	$	65,521	$	13,741	$	56,508	$	2,187
Commercial real estate—owner occupied		24,600		27,700		3,811		26,531		1,043
Lease financing		7		7		—		120		—
Commercial and business lending		82,592		93,228		17,552		83,159		3,230
Commercial real estate—investor		80,766		96,581		9,687		85,642		2,891
Real estate construction		16,299		22,311		3,411		19,122		437
Commercial real estate lending		97,065		118,892		13,098		104,764		3,328
Total commercial		179,657		212,120		30,650		187,923		6,558
Home equity		47,113		54,456		24,580		50,334		1,962
Installment		2,491		2,847		1,155		2,773		172
Residential mortgage		72,408		81,959		12,906		76,989		2,211
Total consumer		122,012		139,262		38,641		130,096		4,345
Total loans	$	301,669	$	351,382	$	69,291	$	318,019	$	10,903
Loans with no related allowance
Commercial and industrial	$	9,337	$	16,339	$	—	$	10,883	$	229
Commercial real estate—owner occupied		13,506		16,582		—		14,425		68
Lease financing		3,024		3,024		—		3,896		—
Commercial and business lending		25,867		35,945		—		29,204		297
Commercial real estate—investor		19,581		28,531		—		20,490		173
Real estate construction		15,533		24,724		—		18,350		109
Commercial real estate lending		35,114		53,255		—		38,840		282
Total commercial		60,981		89,200		—		68,044		579
Home equity		2,070		2,269		—		2,164		36
Installment		—		—		—		—		—
Residential mortgage		9,235		12,246		—		11,566		208
Total consumer		11,305		14,515		—		13,730		244
Total loans	$	72,286	$	103,715	$	—	$	81,774	$	823
Total
Commercial and industrial	$	67,322	$	81,860	$	13,741	$	67,391	$	2,416
Commercial real estate—owner occupied		38,106		44,282		3,811		40,956		1,111
Lease financing		3,031		3,031		—		4,016		—
Commercial and business lending		108,459		129,173		17,552		112,363		3,527
Commercial real estate—investor		100,347		125,112		9,687		106,132		3,064
Real estate construction		31,832		47,035		3,411		37,472		546
Commercial real estate lending		132,179		172,147		13,098		143,604		3,610
Total commercial		240,638		301,320		30,650		255,967		7,137
Home equity		49,183		56,725		24,580		52,498		1,998
Installment		2,491		2,847		1,155		2,773		172
Residential mortgage		81,643		94,205		12,906		88,555		2,419
Total consumer		133,317		153,777		38,641		143,826		4,589
Total loans	$	373,955	$	455,097	$	69,291	$	399,793	$	11,726

* Interest income recognized included $6 million of interest income recognized on accruing restructured loans for the year ended December 31, 2012.

Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Loans are generally placed on nonaccrual status when contractually past due 90 days or more as to interest or principal payments, unless the loan is well secured and in the process of collection. Additionally, whenever management becomes aware of

24

facts or circumstances that may adversely impact the collectability of principal or interest on loans, it is management’s practice to place such loans on nonaccrual status immediately, rather than delaying such action until the loans become 90 days past due. When a loan is placed on nonaccrual status, previously accrued and uncollected interest is reversed, amortization of related deferred loan fees or costs is suspended, and income is recorded only to the extent that interest payments are subsequently received in cash and a determination has been made that the principal and interest of the loan is collectible. If collectability of the principal and interest is in doubt, payments received are applied to loan principal.

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

Troubled Debt Restructurings (“Restructured Loans”):

Loans are considered restructured loans if concessions have been granted to borrowers that are experiencing financial difficulty. The concessions granted generally involve 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. Nonaccrual restructured loans are included and treated with all other nonaccrual loans. In addition, all accruing restructured loans are reported as troubled debt restructurings, which are considered and accounted for as impaired loans. Generally, restructured loans remain on nonaccrual until the customer has attained a sustained period of repayment performance under the modified loan terms (generally a minimum of six months). However, performance prior to the restructuring, or significant events that coincide with the restructuring, are considered in assessing whether the borrower can meet the new terms and whether the loan should be returned to or maintained on accrual status. If the borrower’s ability to meet the revised payment schedule is not reasonably assured, the loan remains on nonaccrual status. The Corporation had a $28 million recorded investment in loans modified in a troubled debt restructuring for the six months ended June 30, 2013, of which, $13 million were in accrual status and $15 million were in nonaccrual pending a sustained period of repayment.

As of June 30, 2013 and December 31, 2012, there were $70 million and $81 million, respectively, of nonaccrual restructured loans, and $119 million and $121 million, respectively, of performing restructured loans, included within impaired loans. All restructured loans are considered impaired in the calendar year of restructuring. In subsequent years, a restructured loan may cease being classified as impaired if the loan was modified at a market rate and has performed according to the modified terms for at least six months. A loan that has been modified at a below market rate will return to performing status if it satisfies the six month performance requirement; however, it will remain classified as a restructured loan. The following table presents nonaccrual and performing restructured loans by loan portfolio.

	June 30, 2013				December 31, 2012
	Performing Restructured Loans		Nonaccrual Restructured Loans *		Performing Restructured Loans		Nonaccrual Restructured Loans *
	($ in Thousands)
Commercial and industrial	$	30,970	$	10,166	$	28,140	$	12,496
Commercial real estate—owner occupied		14,336		11,644		13,852		11,514
Commercial real estate—investor		37,299		20,540		41,660		25,221
Real estate construction		5,365		5,168		4,530		6,798
Home equity		9,933		6,529		9,968		6,698
Installment		570		603		653		674
Residential mortgage		20,593		15,704		22,284		17,189
Total	$	119,066	$	70,354	$	121,087	$	80,590

* Nonaccrual restructured loans have been included with nonaccrual loans.

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The following table provides the number of loans modified in a troubled debt restructuring by loan portfolio during the three and six months ended June 30, 2013, and the recorded investment and unpaid principal balance as of June 30, 2013.

	Three Months Ended June 30, 2013						Six Months Ended June 30, 2013
	Number of Loans		Recorded Investment (1)		Unpaid Principal Balance (2)		Number of Loans		Recorded Investment (1)		Unpaid Principal Balance (2)
	($ in Thousands)
Commercial and industrial		25	$	4,323	$	4,414		43	$	6,401	$	8,074
Commercial real estate—owner occupied		7		4,086		4,194		10		6,270		6,388
Commercial real estate—investor		3		1,801		1,948		8		3,822		4,029
Real estate construction		2		51		80		7		2,004		2,057
Home equity		29		2,114		2,640		62		3,580		4,192
Installment		1		34		34		2		199		202
Residential mortgage		26		3,482		3,879		56		5,365		6,072
Total		93	$	15,891	$	17,189		188	$	27,641	$	31,014

(1) Represents post-modification outstanding recorded investment.

(2) Represents pre-modification outstanding recorded investment.

The following table provides the number of loans modified in a troubled debt restructuring by loan portfolio during the three and six months ended June 30, 2012, and the recorded investment and unpaid principal balance as of June 30, 2012.

	Three Months Ended June 30, 2012						Six Months Ended June 30, 2012
	Number of Loans		Recorded Investment (1)		Unpaid Principal Balance (2)		Number of Loans		Recorded Investment (1)		Unpaid Principal Balance (2)
	($ in Thousands)
Commercial and industrial		19	$	5,525	$	9,342		63	$	13,297	$	17,961
Commercial real estate—owner occupied		10		2,753		2,857		19		6,158		6,717
Commercial real estate—investor		18		7,526		7,964		26		10,302		10,751
Real estate construction		3		388		392		6		1,138		1,475
Home equity		8		311		320		22		939		954
Installment		3		87		87		6		118		118
Residential mortgage		5		660		683		13		2,768		2,872
Total		66	$	17,250	$	21,645		155	$	34,720	$	40,848

(1) Represents post-modification outstanding recorded investment.

(2) Represents pre-modification outstanding recorded investment.

Restructured loan modifications may include payment schedule modifications, interest rate concessions, maturity date extensions, modification of note structure (A/B Note), principal reduction, or some combination of these concessions. During the three and six months ended June 30, 2013, restructured loan modifications of commercial and industrial, commercial real estate and real estate construction loans primarily included maturity date extensions and payment schedule modifications. Restructured loan modifications of home equity and residential mortgage loans primarily included maturity date extensions, interest rate concessions, payment schedule modifications, or a combination of these concessions for the three and six months ended June 30, 2013.

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The following table provides the number of loans modified in a troubled debt restructuring during the previous 12 months which subsequently defaulted during the three and six months ended June 30, 2013, as well as the recorded investment in these restructured loans as of June 30, 2013.

	Three Months Ended June 30, 2013				Six Months Ended June 30, 2013
	Number of Loans		Recorded Investment		Number of Loans		Recorded Investment
	($ in Thousands)
Commercial and industrial		15	$	711		22	$	1,798
Commercial real estate—owner occupied		2		43		3		115
Commercial real estate—investor		2		82		5		1,598
Real estate construction		2		41		2		41
Home equity		10		633		13		740
Residential mortgage		7		952		10		1,405
Total		38	$	2,462		55	$	5,697

The following table provides the number of loans modified in a troubled debt restructuring during the previous 12 months which subsequently defaulted during the three and six months ended June 30, 2012, as well as the recorded investment in these restructured loans as of June 30, 2012.

	Three Months Ended June 30, 2012				Six Months Ended June 30, 2012
	Number of Loans		Recorded Investment		Number of Loans		Recorded Investment
	($ in Thousands)
Commercial and industrial		9	$	1,157		15	$	1,981
Commercial real estate—investor		9		5,770		13		7,053
Real estate construction		5		1,830		6		1,848
Home equity		4		254		6		314
Installment		2		334		2		333
Residential mortgage		6		584		6		584
Total		35	$	9,929		48	$	12,113

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

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NOTE 7: Goodwill and Other Intangible Assets

Goodwill: Goodwill is not amortized but, instead, is subject to impairment tests on at least an annual basis, and more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The impairment testing process is conducted by assigning net assets and goodwill to each reporting unit. An initial qualitative evaluation is made to assess the likelihood of impairment and determine whether further quantitative testing to calculate the fair value is necessary. When the qualitative evaluation indicates that impairment is more likely than not, quantitative testing is required whereby the fair value of each reporting unit is calculated and compared to the recorded book value, “step one.” If the calculated 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 calculated 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 2013, utilizing a qualitative assessment as permitted by recent accounting pronouncements (see Note 2 for additional information on this new accounting pronouncement). Factors that management considered in this assessment included macroeconomic conditions, industry and market considerations, overall financial performance (both current and projected), changes in management strategy, and changes in the composition or carrying amount of net assets. In addition, management considered the significant increases in both the Corporation’s common stock price and in the overall bank common stock index (based on the Nasdaq bank index), as well as the Corporation’s improving earnings per common share trend over the past year. Based on these assessments, management concluded that the 2013 annual qualitative impairment assessment indicated that it is more likely than not that the estimated fair value exceeded the carrying value (including goodwill) for each reporting unit. Therefore, a step one quantitative analysis was not required. The annual impairment testing in prior years was based upon a quantitative measurement of the fair value of the reporting units. There were no impairment charges recorded in 2012, or through June 30, 2013. It is possible that a future conclusion could be reached that all or a portion of the Corporation’s goodwill may be impaired, in which case a non-cash charge for the amount of such impairment would be recorded in earnings. Such a charge, if any, would have no impact on tangible capital and would not affect the Corporation’s “well-capitalized” designation.

At June 30, 2013, the Corporation had goodwill of $929 million, including goodwill of $428 million assigned to the Commercial Banking reporting unit and goodwill of $501 million assigned to the Consumer Banking reporting unit. There was no change in the carrying amount of goodwill during 2012 or through the first half of 2013.

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. For core deposit intangibles and other intangibles, changes in the gross carrying amount, accumulated amortization, and net book value were as follows.

	Six Months Ended June 30, 2013			Year Ended December 31, 2012
	($ in Thousands)
Core deposit intangibles:
Gross carrying amount	$	36,231		$	41,831
Accumulated amortization		(30,005	)		(34,044	)
Net book value	$	6,226		$	7,787
Amortization during the period	$	1,561		$	3,229
Other intangibles:
Gross carrying amount	$	19,283		$	19,283
Accumulated amortization		(12,304	)		(11,843	)
Net book value	$	6,979		$	7,440
Amortization during the period	$	461		$	966

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

The Corporation periodically evaluates its mortgage servicing rights asset for impairment. Impairment is assessed based on fair value at each reporting date using estimated prepayment speeds of the underlying mortgage loans serviced and stratifications based on the risk characteristics of the underlying loans (predominantly loan type and note interest rate). As mortgage interest rates fall, prepayment speeds are usually faster and the value of the mortgage servicing rights asset generally decreases, requiring additional valuation reserve. Conversely, as mortgage interest rates rise, prepayment speeds are usually slower and the value of the mortgage servicing rights asset generally increases, requiring less valuation reserve. A valuation allowance is established, through a charge to earnings, to the extent the amortized cost of the mortgage servicing rights exceeds the estimated fair value by stratification. If it is later determined that all or a portion of the temporary impairment no longer exists for a stratification, the valuation is reduced through a recovery to earnings. An other-than-temporary impairment (i.e., recoverability is considered remote when considering interest rates and loan pay off activity) is recognized as a write-down of the mortgage servicing rights asset and the related valuation allowance (to the extent a valuation allowance is available) and then against earnings. A direct write-down permanently reduces the carrying value of the mortgage servicing rights asset and valuation allowance, precluding subsequent recoveries. The Corporation recorded an other-than-temporary impairment of $15 million on mortgage servicing rights by reducing the capitalized costs and the valuation allowance on mortgage servicing rights during 2012 due to the uncertainty of the recoverability of the valuation allowance on mortgage servicing rights associated with the long-term, consistently low rate environment. See Note 12, “Commitments, Off-Balance Sheet Arrangements, and Contingent Liabilities,” for a discussion of the recourse provisions on serviced residential mortgage loans. See Note 13, “Fair Value Measurements,” which further discusses fair value measurement relative to the mortgage servicing rights asset.

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

	Six Months Ended			Year Ended
	June 30, 2013			December 31, 2012
	($ in Thousands)
Mortgage servicing rights:
Mortgage servicing rights at beginning of period	$	61,425		$	75,855
Additions		11,367			23,528
Amortization		(9,191	)		(23,348	)
Other-than-temporary impairment		—			(14,610	)
Mortgage servicing rights at end of period	$	63,601		$	61,425
Valuation allowance at beginning of period		(15,476	)		(27,703	)
(Additions) / Recoveries, net		13,282			(2,383	)
Other-than-temporary impairment		—			14,610
Valuation allowance at end of period		(2,194	)		(15,476	)
Mortgage servicing rights, net	$	61,407		$	45,949
Fair value of mortgage servicing rights	$	65,485		$	45,949
Portfolio of residential mortgage loans serviced for others (“servicing portfolio”)		7,794,000			7,453,000
Mortgage servicing rights, net to servicing portfolio		0.79	%		0.62	%
Mortgage servicing rights expense(1)	$	(4,091	)	$	25,731

(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.

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The following table shows the estimated future amortization expense for amortizing intangible assets. The projections of amortization expense for the next five years are based on existing asset balances, the current interest rate environment, and prepayment speeds as of June 30, 2013. The actual amortization expense the Corporation recognizes in any given period may be significantly different depending upon acquisition or sale activities, changes in interest rates, prepayment speeds, market conditions, regulatory requirements, and events or circumstances that indicate the carrying amount of an asset may not be recoverable.

Estimated amortization expense:	Core Deposit Intangibles		Other Intangibles		Mortgage Servicing Rights
	($ in Thousands)
Six months ending December 31, 2013	$	1,500	$	500	$	5,700
Year ending December 31, 2014		2,900		900		9,900
Year ending December 31, 2015		1,400		800		8,100
Year ending December 31, 2016		300		800		6,700
Year ending December 31, 2017		100		800		5,600
Year ending December 31, 2018		—		700		4,700

NOTE 8: Short and Long-Term Funding

The components of short-term funding (funding with original contractual maturities of one year or less) and long-term funding (funding with original contractual maturities greater than one year) were as follows.

	June 30, 2013		December 31, 2012
	($ in Thousands)
Short-Term Funding
Federal funds purchased	$	56,040	$	71,385
Securities sold under agreements to repurchase		489,700		679,070
Federal funds purchased and securities sold under agreements to repurchase		545,740		750,455
Federal Home Loan Bank (“FHLB”) advances		2,150,000		1,525,000
Commercial paper		68,760		51,484
Other short-term funding		2,218,760		1,576,484
Total short-term funding	$	2,764,500	$	2,326,939
Long-Term Funding
FHLB advances	$	353	$	400,375
Senior notes, at par		585,000		585,000
Subordinated debt, at par		25,821		25,821
Other long-term funding and capitalized costs		3,648		4,150
Total long-term funding	$	614,822	$	1,015,346
Total short and long-term funding	$	3,379,322	$	3,342,285

Short-term funding:

The FHLB advances included in short-term funding are those with original contractual maturities of one year or less. The securities sold under agreements to repurchase represent short-term funding which is collateralized by securities of the U.S. Government or its agencies and mature daily.

Long-term funding:

FHLB advances: At June 30, 2013, the long-term FHLB advances had a weighted-average interest rate of 5.06%, compared to 1.79% at December 31, 2012. These advances all had fixed interest rates at both June 30, 2013 and December 31, 2012. During the first half of 2013, $400 million of long-term FHLB advances matured.

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Senior notes: In March 2011, the Corporation issued $300 million of senior notes at a discount. In September 2011, the Corporation issued an additional $130 million of senior notes at a premium. The 2011 senior note issuances mature on March 28, 2016 and have a fixed coupon interest rate of 5.125%. In September 2012, the Corporation issued $155 million of senior notes at a discount. The 2012 senior note issuance matures on March 12, 2014 and has a fixed coupon interest rate of 1.875%.

Subordinated debt: In September 2008, the Corporation issued $26 million of 10-year subordinated debt with a 5-year no-call provision. The subordinated debt was issued at a discount, has a fixed coupon interest rate of 9.25%, and is callable beginning in September 2013. 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.

NOTE 9: Income Taxes

For the first half of 2013, the Corporation recognized income tax expense of $44 million, compared to income tax expense of $42 million for the first half of 2012. The effective tax rate was 31.57% for the first half of 2013, compared to an effective tax rate of 32.61% for the first half of 2012.

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NOTE 10: Derivative and Hedging Activities

The Corporation facilitates customer borrowing activity by providing various interest rate risk management solutions through its capital markets area. To date, all of the notional amounts of customer transactions have been matched with a mirror swap with another counterparty. The Corporation may also use derivative instruments 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, written options, purchased options, and certain mortgage banking activities. The contract or notional amount of a derivative is used to determine, along with the other terms of the derivative, the amounts to be exchanged between the counterparties. The Corporation is exposed to credit risk in the event of nonperformance by counterparties to financial instruments. To mitigate the counterparty risk, interest rate-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 $54 million of investment securities as collateral at June 30, 2013, and pledged $70 million of investment securities as collateral at December 31, 2012.

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

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

							Weighted Average
($ in Thousands)	Notional Amount		Fair Value			Balance Sheet Category	Receive Rate(1)			Pay Rate(1)			Maturity
June 30, 2013
Interest rate-related instruments — customer and mirror	$	1,808,002	$	48,337		Trading assets		1.57	%		1.57	%		45	months
Interest rate-related instruments — customer and mirror		1,808,002		(51,299	)	Trading liabilities		1.57			1.57			45	months
Interest rate lock commitments (mortgage)		333,668		(5,151	)	Other liabilities		—			—				—
Forward commitments (mortgage)		507,000		20,313		Other assets		—			—				—
Foreign currency exchange forwards		46,853		1,395		Trading assets		—			—				—
Foreign currency exchange forwards		43,748		(1,299	)	Trading liabilities		—			—				—
Purchased options (time deposit)		114,567		5,108		Other assets		—			—				—
Written options (time deposit)		114,567		(5,108	)	Other liabilities		—			—				—
December 31, 2012
Interest rate-related instruments — customer and mirror	$	1,728,545	$	69,370		Trading assets		1.30	%		1.30	%		47	months
Interest rate-related instruments — customer and mirror		1,728,545		(75,131	)	Trading liabilities		1.30			1.30			47	months
Interest rate lock commitments (mortgage)		351,786		7,794		Other assets		—			—				—
Forward commitments (mortgage)		520,000		(147	)	Other liabilities		—			—				—
Foreign currency exchange forwards		39,763		1,341		Trading assets		—			—				—
Foreign currency exchange forwards		35,745		(1,212	)	Trading liabilities		—			—				—
Purchased options (time deposit)		111,262		3,620		Other assets		—			—				—
Written options (time deposit)		111,262		(3,620	)	Other liabilities		—			—				—

(1) Reflects the weighted average receive rate and pay rate for the interest rate-related instruments only.

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

	Income Statement Category of	Gain / (Loss)
	Gain / (Loss) Recognized in Income	Recognized in Income
		($ in Thousands)
Six Months Ended June 30, 2013
Interest rate-related instruments — customer and mirror, net	Capital market fees, net	$	2,799
Interest rate lock commitments (mortgage)	Mortgage banking, net		(12,945	)
Forward commitments (mortgage)	Mortgage banking, net		20,460
Foreign currency exchange forwards	Capital market fees, net		(33	)
Six Months Ended June 30, 2012
Interest rate-related instruments — customer and mirror, net	Capital market fees, net	$	174
Interest rate lock commitments (mortgage)	Mortgage banking, net		6,621
Forward commitments (mortgage)	Mortgage banking, net		1,850
Foreign currency exchange forwards	Capital market fees, net		(64	)
Covered call options	Interest on investment securities		469

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).

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.

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.

Written and purchased option derivatives (time deposit)

The Corporation periodically enters into written and purchased option derivative instruments to facilitate an equity linked time deposit product (the “Power CD”). The Power CD is a time deposit that provides the purchaser a guaranteed return of principal at maturity plus a potential equity return (a written option), while the Corporation receives a known stream of funds based on the equity return (a purchased option). The written and purchased options are mirror derivative instruments which are carried at fair value on the consolidated balance sheets.

Other derivatives

During the second quarter of 2012, the Corporation began entering into covered call options. Under covered call options, the Corporation will sell options to a bank or dealer for the right to purchase certain securities held within the Corporation’s investment securities portfolio. These option transactions are designed primarily to increase the total return associated with the investment securities portfolio. These options do not qualify as hedges, and, accordingly, the changes in fair value of these contracts are recognized in interest income. There were no covered call options outstanding as of June 30, 2013 or December 31, 2012.

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NOTE 11: Balance Sheet Offsetting

Interest Rate-Related Instruments (“Interest Agreements”)

The Corporation enters into interest rate-related instruments to facilitate the interest rate risk management strategies of commercial customers. The Corporation mitigates this risk by entering into equal and offsetting interest rate-related instruments with highly rated third party financial institutions. The interest agreements are free-standing derivatives and are recorded at fair value in the Corporation’s consolidated balance sheet. The Corporation is party to master netting arrangements with its financial institution counterparties; however, the Corporation does not offset assets and liabilities under these arrangements for financial statement presentation purposes. The master netting arrangements provide for a single net settlement of all interest agreements, as well as collateral, in the event of default on, or termination of, any one contract. Collateral, usually in the form of investment securities, is posted by the counterparty with net liability positions in accordance with contract thresholds. See Note 10 for additional information on the Corporation’s derivative and hedging activities.

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

The Corporation enters into agreements under which it sells securities subject to an obligation to repurchase the same or similar securities. Under these arrangements, the Corporation may transfer legal control over the assets but still retain effective control through an agreement that both entitles and obligates the Corporation to repurchase the assets. As a result, these repurchase agreements are accounted for as collateralized financing arrangements (i.e., secured borrowings) and not as a sale and subsequent repurchase of securities. The obligation to repurchase the securities is reflected as a liability in the Corporation’s consolidated balance sheet, while the securities underlying the repurchase agreements remain in the respective investment securities asset accounts (i.e., there is no offsetting or netting of the investment securities assets with the repurchase agreement liabilities). The right of setoff for a repurchase agreement resembles a secured borrowing, whereby the collateral would be used to settle the fair value of the repurchase agreement should the Corporation be in default (e.g., fails to make an interest payment to the counterparty). In addition, the Corporation does not enter into reverse repurchase agreements; therefore, there is no such offsetting to be done with the repurchase agreements.

The following table presents the assets and liabilities subject to an enforceable master netting arrangement as of June 30, 2013 and December 31, 2012. The swap agreements we have with our commercial customers are not subject to an enforceable master netting arrangement, and therefore, are excluded from this table.

	Gross		Gross amounts		Net amounts		Gross amounts not offset in the balance sheet
June 30, 2013	amounts recognized		offset in the balance sheet		presented in the balance sheet		Financial instruments			Collateral			Net amount
	($ in Thousands)
Derivative assets:
Interest rate-related instruments	$	2,694	$	—	$	2,694	$	(2,690	)	$	—		$	4
Derivative liabilities:
Interest rate-related instruments	$	47,897	$	—	$	47,897	$	(2,690	)	$	(41,241	)	$	3,966
	Gross		Gross amounts		Net amounts		Gross amounts not offset in the balance sheet
December 31, 2012	amounts recognized		offset in the balance sheet		presented in the balance sheet		Financial instruments			Collateral			Net amount
	($ in Thousands)
Derivative assets:
Interest rate-related instruments	$	66	$	—	$	66	$	(66	)	$	—		$	—
Derivative liabilities:
Interest rate-related instruments	$	73,067	$	—	$	73,067	$	(66	)	$	(67,331	)	$	5,670

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

The Corporation utilizes a variety of financial instruments in the normal course of business to meet the financial needs of its customers and to manage its own exposure to fluctuations in interest rates. These financial instruments include lending-related and other commitments (see below) and derivative instruments (see Note 10). The following is a summary of lending-related commitments.

	June 30, 2013		December 31, 2012
	($ in Thousands)
Commitments to extend credit, excluding commitments to originate residential mortgage loans held for sale(1)(2)	$	5,676,656	$	5,526,326
Commercial letters of credit(1)		132,802		85,689
Standby letters of credit(3)		276,110		303,705

(1) These off-balance sheet financial instruments are exercisable at the market rate prevailing at the date the underlying transaction will be completed and, thus, are deemed to have no current fair value, or the fair value is based on fees currently charged to enter into similar agreements and is not material at June 30, 2013 or December 31, 2012.

(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 $4 million at both June 30, 2013 and December 31, 2012, as an estimate of the fair value of these financial instruments.

Lending-related Commitments

As a financial services provider, the Corporation routinely enters into commitments to extend credit. Such commitments are subject to the same credit policies and approval process accorded to loans made by the Corporation, with each customer’s creditworthiness evaluated on a case-by-case basis. The commitments generally have fixed expiration dates or other termination clauses and may require the payment of a fee. The Corporation’s exposure to credit loss in the event of nonperformance by the other party to these financial instruments is represented by the contractual amount of those instruments. The amount of collateral obtained, if deemed necessary by the Corporation upon extension of credit, is based on management’s credit evaluation of the customer. Since a significant portion of commitments to extend credit are subject to specific restrictive loan covenants or may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash flow requirements. For both June 30, 2013 and December 31, 2012, the Corporation had a reserve for losses on unfunded commitments totaling $22 million 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.

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 these investments at June 30, 2013 was $33 million, included in other assets on the consolidated balance sheets, compared to $35 million at December 31, 2012. Related to these investments, the Corporation had remaining commitments to fund of $17 million at June 30, 2013 and $18 million at December 31, 2012, respectively.

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Contingent Liabilities

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

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

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

A putative class action lawsuit,Harris v. Associated Bank, N.A. (the “Bank”), was filed in the United States District Court for the Western District of Wisconsin in April 2010, alleging that the Bank unfairly assessed and collected overdraft fees and seeking restitution of the overdraft fees, compensatory, consequential and punitive damages, and costs. The case was subsequently consolidated into the Multi District Litigation (“MDL”),In re: Checking Account Overdraft Litigation MDL No. 2036 in the United States District Court for the Southern District of Florida. A settlement agreement which requires payment by the Bank of $13 million for a full and complete release of all claims brought against the Bank received preliminary approval from the court on July 26, 2012. By entering into such an agreement, we have not admitted any liability with respect to the lawsuit. The settlement amount was previously accrued for in the financial statements. In the second quarter of 2012, the Bank settled with an insurer for a $2.5 million contribution to the settlement amount and partial reimbursement of defense costs of up to $2.1 million.

A lawsuit,R.J. ZAYED v. Associated Bank, N.A., was filed in the United States District Court for the District of Minnesota on January 29, 2013. The lawsuit relates to a Ponzi scheme perpetrated by Oxford Global Partners and related entities (“Oxford”) and individuals and was brought by the receiver for Oxford. Oxford was a depository customer of the Bank. The lawsuit claims that the Bank is liable for failing to uncover the Oxford Ponzi scheme, and specifically alleges the Bank aided and abetted (1) the fraudulent scheme; (2) a breach of fiduciary duty; (3) conversion; and (4) false representations and omissions. The lawsuit seeks unspecified consequential and punitive damages. At this early stage of the lawsuit, it is not possible for management to assess the probability of a material adverse outcome or reasonably estimate the amount of any potential loss at this time. The Bank intends to vigorously defend this lawsuit. A lawsuit by investors in the same Ponzi scheme,Herman Grad, et al v. Associated Bank, N.A., brought in Brown County, Wisconsin in October 2009 was dismissed by the circuit court, and the dismissal was affirmed by the Wisconsin Court of Appeals in June 2011 in an unpublished opinion.

The Bank is currently subject to a Consent Order with the OCC relating to its Bank Secrecy Act of 1970 (“BSA”) compliance. The OCC has issued a written notice to the Bank related to the Bank’s past BSA deficiencies. After the OCC’s review of the Bank’s response, the OCC may impose a civil money penalty related to these deficiencies. The Corporation is currently not able to estimate a reasonable range of losses relating to that possibility.

Residential mortgage loans sold to others are predominantly conventional residential first lien mortgages originated under our usual underwriting procedures, and are most often sold on a nonrecourse basis, primarily to the government-sponsored enterprises (“GSEs”). The Corporation’s agreements to sell residential mortgage loans in the normal course of business usually require certain representations and warranties on the underlying loans sold, related to credit information, loan documentation, collateral, and insurability. Subsequent to being sold, if a material underwriting deficiency or documentation defect is discovered, the Corporation may be obligated to repurchase the loan or reimburse the GSEs for losses incurred (collectively, “make whole requests”). The make whole requests and any related risk of loss under the representations and warranties are largely driven by borrower performance. As a result of make whole requests, the Corporation has repurchased loans with principal balances of $3 million and $5 million for the six months ended June 30, 2013 and the year ended December 31, 2012, respectively, and paid loss reimbursement claims of $2 million

36

and $4 million during the six months ended June 30, 2013 and the year ended December 31, 2012, respectively. Make whole requests and claims had been relatively modest prior to 2012; however, similar to other banks, this activity steadily increased during the second half of 2012 and into the first half of 2013, and therefore, the Corporation had a repurchase reserve for potential claims on loans previously sold of $5 million at June 30, 2013, compared to $3 million at December 31, 2012. Make whole requests during 2012 and the first half of 2013 generally arose from loans sold during the period January 1, 2006 to June 30, 2013, which totaled $16.4 billion at the time of sale, and consisted primarily of loans sold to GSEs. As of June 30, 2013, approximately $7.1 billion of these sold loans remain outstanding. Management will continue to monitor this activity in 2013 and its impact on the reserve. The following summarizes the changes in the mortgage repurchase reserve.

	For the Six Months Ended June 30, 2013			For the Year Ended December 31, 2012
	($ in Thousands)
Balance at beginning of period	$	3,300		$	—
Repurchase provision expense		4,018			7,109
Charge offs		(2,118	)		(3,809	)
Balance at end of period	$	5,200		$	3,300

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 June 30, 2013, and December 31, 2012, there were approximately $51 million and $79 million, respectively, of residential mortgage loans sold with such recourse risk. There have been limited instances of repurchase for recourse under the limited recourse criteria.

In October 2004, the Corporation acquired a thrift. Prior to the acquisition, this thrift retained a subordinate position to the FHLB in the credit risk on the underlying residential mortgage loans it sold to the FHLB in exchange for a monthly credit enhancement fee. The Corporation has not sold loans to the FHLB with such credit risk retention since February 2005. At June 30, 2013 and December 31, 2012, there were $270 million and $321 million, respectively, of such residential mortgage loans with credit risk recourse, upon which there have been negligible historical losses to the Corporation.

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. As of January 1, 2009, the Corporation discontinued providing reinsurance coverage for new loans in exchange for a portion of the PMI premium. During the first half of 2013, the Corporation terminated its reinsurance treaties with all third party PMI mortgage reinsurance carriers. As a result, the Corporation’s estimated liability for reinsurance losses was $0 as of June 30, 2013, compared to $8 million at December 31, 2012.

Regulatory Matters

During the first quarter of 2012, the Bank entered into a Consent Order with the OCC regarding its BSA compliance. The Consent Order required the Bank to create a BSA-focused action plan, supplement existing customer due diligence policies and procedures, perform a BSA risk assessment and complete independent testing. The Bank has been working cooperatively with the OCC, and management believes it is in compliance with the Consent Order. The OCC has issued a written notice to the Bank related to the Bank’s past BSA deficiencies. After the OCC’s review of the Bank’s response, the OCC may impose a civil money penalty related to these deficiencies. The Corporation is currently not able to estimate a reasonable range of losses relating to that possibility.

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NOTE 13: Fair Value Measurements

Fair value represents the estimated price at which an orderly transaction to sell an asset or to transfer a liability would take place between market participants at the measurement date under current market conditions (i.e., an exit price concept). As there is no active market for many of the Corporation’s financial instruments, estimates are made using discounted cash flow or other valuation techniques. Inputs into the valuation methods are subjective in nature, involve uncertainties, and require significant judgment and therefore cannot be determined with precision. Accordingly, the derived fair value estimates presented herein are not necessarily indicative of the amounts the Corporation could realize in a current market exchange. Assets and liabilities are categorized into three levels based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. 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 in 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. Below is a brief description of each fair value level.

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.

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

Investment securities available for sale: Where quoted prices are available in an active market, investment securities are classified in Level 1 of the fair value hierarchy. Level 1 investment securities primarily include U.S. Treasury, certain Federal agency, and exchange-traded debt and equity securities. If quoted market prices are not available for the specific security, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows, with consideration given to the nature of the quote and the relationship of recently evidenced market activity to the fair value estimate, and are classified in Level 2 of the fair value hierarchy. Examples of these investment securities include certain Federal agency securities, obligations of state and political subdivisions, mortgage-related securities, asset-backed securities, and other debt securities. Lastly, in certain cases where there is limited activity or less transparency around inputs to the estimated fair value, securities are classified within Level 3 of the fair value hierarchy. Level 3 securities primarily include pooled trust preferred debt securities. To validate the fair value estimates, assumptions, and controls, the Corporation looks to transactions for similar instruments and utilizes independent pricing provided by third party vendors or brokers and relevant market indices. While none of these sources are solely indicative of fair value, they serve as directional indicators for the appropriateness of the Corporation’s fair value estimates. The Corporation has determined that the fair value measures of its investment securities are classified predominantly within Level 1 or 2 of the fair value hierarchy. See Note 5, “Investment Securities,” for additional disclosure regarding the Corporation’s investment securities.

Derivative financial instruments (interest rate-related instruments): The Corporation uses interest rate swaps to manage its interest rate risk. In addition, the Corporation offers customer interest rate swaps, caps, collars, and corridors to service our customers’ needs, for which the Corporation simultaneously enters into offsetting derivative financial instruments (i.e., mirror interest rate swaps, caps, collars, and corridors) with third parties to manage its interest rate risk associated with these financial instruments. The valuation of the Corporation’s derivative financial instruments is determined using discounted cash flow analysis on the expected cash flows of each derivative and, also includes a nonperformance / credit risk component (credit valuation adjustment). See Note 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

38

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.

As of January 1, 2013, the Corporation changed its valuation methodology for interest-rate related derivative financial instruments to discount cash flows based on Overnight Index Swap (“OIS”) rates. Fully collateralized trades are discounted using OIS with no additional economic adjustments to arrive at fair value. Under-collateralized or partially collateralized trades are also discounted at OIS, but include appropriate economic adjustments for funding costs (i.e., a LIBOR-OIS basis adjustment to approximate uncollateralized cost of funds) and credit risk. The Corporation is making the changes to better align its inputs, assumptions, and pricing methodologies with those used in its principal market by most dealers and major market participants. The changes in valuation methodology are immaterial to the Corporation’s results of operations, financial position, and liquidity.

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. In conjunction with the FASB’s fair value measurement guidance, the Corporation made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio.

While the Corporation has determined that the majority of the inputs used to value its derivative financial instruments fall within Level 2 of the fair value hierarchy, the credit valuation adjustments utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. The Corporation has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions as of June 30, 2013, and December 31, 2012, and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivative financial instruments. Therefore, the Corporation has determined that the fair value measures of its derivative financial instruments in their entirety are classified within Level 2 of the fair value hierarchy.

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

Derivative financial instruments (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.

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.

39

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

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

Mortgage servicing rights: Mortgage servicing rights do not trade in an active, open market with readily observable prices. While sales of mortgage servicing rights do occur, the precise terms and conditions typically are not readily available to allow for a “quoted price for similar assets” comparison. Accordingly, the Corporation utilizes an independent valuation from a third party which uses a discounted cash flow model to estimate the fair value of its mortgage servicing rights. The valuation model incorporates prepayment assumptions to project mortgage servicing rights cash flows based on the current interest rate scenario, which is then discounted to estimate an expected fair value of the mortgage servicing rights. The valuation model considers portfolio characteristics of the underlying mortgages, contractually specified servicing fees, prepayment assumptions, discount rate assumptions, delinquency rates, late charges, other ancillary revenue, costs to service, and other economic factors. The Corporation periodically reviews and assesses the underlying inputs and assumptions used in the model. In addition, the Corporation compares its fair value estimates and assumptions to observable market data for mortgage servicing rights, where available, and to recent market activity and actual portfolio experience. Due to the nature of the valuation inputs, mortgage servicing rights are classified within Level 3 of the fair value hierarchy. The Corporation uses the amortization method (i.e., lower of amortized cost or estimated fair value measured on a nonrecurring basis), not fair value measurement accounting, for its mortgage servicing rights assets. See Note 7, “Goodwill and Other Intangible Assets,” for additional disclosure regarding the Corporation’s mortgage servicing rights.

The table below presents the Corporation’s investment securities available for sale and derivative financial instruments measured at fair value on a recurring basis as of June 30, 2013 and December 31, 2012, aggregated by the level in the fair value hierarchy within which those measurements fall.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

			Fair Value Measurements Using
	June 30, 2013		Level 1		Level 2		Level 3
	($ in Thousands)
Assets:
Investment securities available for sale:
U.S. Treasury securities	$	1,004	$	1,004	$	—	$	—
Obligations of state and political subdivisions (municipal securities)		730,233		—		730,233		—
GSE residential mortgage-related securities		3,605,030		—		3,605,030		—
Private label residential mortgage-related securities		3,439		—		3,439		—
GSE commercial mortgage-related securities		431,252		—		431,252		—
Other securities (debt and equity)		83,361		1,890		80,960		511
Total investment securities available for sale	$	4,854,319	$	2,894	$	4,850,914	$	511
Derivatives (trading and other assets)	$	75,153	$	—	$	54,840	$	20,313
Liabilities:
Derivatives (trading and other liabilities)	$	62,857	$	—	$	57,706	$	5,151

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			Fair Value Measurements Using
	December 31, 2012		Level 1		Level 2		Level 3
	($ in Thousands)
Assets:
Investment securities available for sale:
U.S. Treasury securities	$	1,004	$	1,004	$	—	$	—
Obligations of state and political subdivisions (municipal securities)		801,188		—		801,188		—
GSE residential mortgage-related securities		3,798,155		—		3,798,155		—
Private label residential mortgage-related securities		6,149		—		6,149		—
GSE commercial mortgage-related securities		228,166		—		228,166		—
Other securities (debt and equity)		92,096		2,841		88,775		480
Total investment securities available for sale	$	4,926,758	$	3,845	$	4,922,433	$	480
Derivatives (trading and other assets)	$	82,125	$	—	$	74,331	$	7,794
Liabilities:
Derivatives (trading and other liabilities)	$	80,110	$	—	$	79,963	$	147

The table below presents a rollforward of the balance sheet amounts for the year ended December 31, 2012 and the six months ended June 30, 2013, 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)

($ in Thousands)		Investment Securities Available for Sale			Derivative Financial Instruments
Balance December 31, 2011		$	856		$	(200	)
Total net gains included in income:	��
Mortgage derivative gain			—			7,847
Total net gains included in other comprehensive income:
Unrealized investment securities gains			49			—
Sales of investment securities			(425	)		—
Balance December 31, 2012		$	480		$	7,647
Total net gains included in income:
Mortgage derivative gain			—			7,515
Total net gains included in other comprehensive income:
Unrealized investment securities gains			31			—
Balance June 30, 2013		$	511		$	15,162

For Level 3 assets and liabilities measured at fair value on a recurring or nonrecurring basis as of June 30, 2013, the Corporation utilized the following valuation techniques and significant unobservable inputs.

Investment securities available for sale – other securities (debt and equity): In valuing the investment securities available for sale classified within Level 3, the Corporation utilized a discounted cash flow model and incorporated its own assumptions about future cash flows and discount rates adjusting for credit and liquidity factors. The Corporation also reviewed the underlying collateral and other relevant data in developing the assumptions for these investment securities. The significant unobservable input used within the discounted cash flow analysis was the discount rate, which was based on the 3 month LIBOR forward curve (the 3 month LIBOR forward ranged from 0.35% to 3.07%) plus the investment security spread, at June 30, 2013.

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Derivative financial instruments (mortgage derivative – interest rate lock commitments to originate residential mortgage loans held for sale): The significant unobservable input used in the fair value measurement of the Corporation’s mortgage derivative interest rate lock commitments (“IRLC”) is the closing ratio, which represents the percentage of loans currently in a lock position which management estimates will ultimately close. Typically the higher the closing ratio on the IRLC’s will result in an increase in the fair value if in a gain position or a decrease in fair value if in a loss position. The closing ratio calculation takes into consideration historical data and loan-level data, (particularly the change in the current interest rates from the time of initial rate lock). The closing ratio is periodically reviewed for reasonableness and reported to Mortgage Risk Management Committee. At June 30, 2013, the closing ratio was 90%.

Impaired loans: For individually evaluated impaired loans, the amount of impairment is based upon the present value of expected future cash flows discounted at the loan’s effective interest rate, the estimated fair value of the underlying collateral for collateral-dependent loans, or the estimated liquidity of the note, resulting in discounts of 0% to 50%.

Mortgage servicing rights: The discounted cash flow analyses that generate expected market prices utilize the observable characteristics of the mortgage servicing rights portfolio, as well as certain unobservable valuation parameters. The significant unobservable inputs used in the fair value measurement of the Corporation’s mortgage servicing rights are the weighted average constant prepayment rate and weighted average discount rate, which were 14.4% and 9.6% at June 30, 2013, respectively. Significant increases (decreases) in any of those inputs in isolation could result in a significantly lower (higher) fair value measurement. Although the prepayment rate and discount rate are not directly interrelated, they will generally move in opposite directions.

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

The table below presents the Corporation’s loans held for sale, impaired loans, and mortgage servicing rights measured at fair value on a nonrecurring basis as of June 30, 2013 and December 31, 2012, aggregated by the level in the fair value hierarchy within which those measurements fall.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

			Fair Value Measurements Using
	June 30, 2013		Level 1		Level 2		Level 3
	($ in Thousands)
Assets:
Loans held for sale	$	203,576	$	—	$	203,576	$	—
Impaired loans(1)		108,160		—		—		108,160
Mortgage servicing rights		65,485		—		—		65,485
			Fair Value Measurements Using
	December 31, 2012		Level 1		Level 2		Level 3
	($ in Thousands)
Assets:
Loans held for sale	$	261,410	$	—	$	261,410	$	—
Impaired loans(1)		115,741		—		—		115,741
Mortgage servicing rights		45,949		—		—		45,949

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

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, and intangible assets and other nonfinancial long-lived assets measured at fair value for impairment assessment.

42

During the first half of 2013 and the full year 2012, certain other real estate owned, upon initial recognition, was re-measured and reported at fair value through a charge off to the allowance for loan losses based upon the estimated fair value of the other real estate owned, less estimated selling costs. The fair value of other real estate owned, upon initial recognition or subsequent impairment, was estimated using appraised values, which the Corporation classifies as a Level 2 nonrecurring fair value measurement. Other real estate owned measured at fair value upon initial recognition totaled approximately $16 million for the first half of 2013 and $47 million for the year ended December 31, 2012, respectively. 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 $2 million, $5 million, and $8 million to asset losses, net for the six months ended June 30, 2013 and 2012, and the year ended December 31, 2012, respectively.

Fair Value of Financial Instruments:

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

The estimated fair values of the Corporation’s financial instruments at June 30, 2013 and December 31, 2012, were as follows.

	June 30, 2013
	Carrying				Fair Value Measurements Using
	Amount		Fair Value		Level 1		Level 2		Level 3
	($ in Thousands)
Financial assets:
Cash and due from banks	$	422,779	$	422,779	$	422,779	$	—	$	—
Interest-bearing deposits in other financial institutions		121,390		121,390		121,390		—		—
Federal funds sold and securities purchased under agreements to resell		10,800		10,800		10,800		—		—
Investment securities held to maturity		75,946		71,498		—		71,498		—
Investment securities available for sale		4,854,319		4,854,319		2,894		4,850,914		511
FHLB and Federal Reserve Bank stocks		181,008		181,008		—		181,008		—
Loans held for sale		203,576		203,576		—		203,576		—
Loans, net		15,469,381		15,549,427		—		—		15,549,427
Bank owned life insurance		562,806		562,806		—		562,806		—
Accrued interest receivable		70,967		70,967		70,967		—		—
Interest rate-related agreements		48,337		48,337		—		48,337		—
Foreign currency exchange forwards		1,395		1,395		—		1,395		—
Forward commitments to sell residential mortgage loans		20,313		20,313		—		—		20,313
Purchased options (time deposit)		5,108		5,108		—		5,108		—
Financial liabilities:
Noninterest-bearing demand, savings, interest-bearing demand, and money market deposits	$	15,313,937	$	15,313,937	$	—	$	—	$	15,313,937
Brokered CDs and other time deposits		1,818,499		1,818,499		—		1,818,499		—
Short-term funding		2,764,500		2,764,500		—		2,764,500		—
Long-term funding		614,822		632,907		—		632,907		—
Accrued interest payable		9,031		9,031		9,031		—		—
Interest rate-related agreements		51,299		51,299		—		51,299		—
Foreign currency exchange forwards		1,299		1,299		—		1,299		—
Standby letters of credit(1)		4,012		4,012		—		4,012		—
Interest rate lock commitments to originate residential mortgage loans held for sale		5,151		5,151		—		—		5,151
Written options (time deposit)		5,108		5,108		—		5,108		—

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	December 31, 2012
	Carrying				Fair Value Measurements Using
	Amount		Fair Value		Level 1			Level 2		Level 3
	($ in Thousands)
Financial assets:
Cash and due from banks	$	563,304	$	563,304	$	563,304		$	—	$	—
Interest-bearing deposits in other financial institutions		147,434		147,434		147,434			—		—
Federal funds sold and securities purchased under agreements to resell		27,135		27,135		27,135			—		—
Investment securities held to maturity		39,877		39,679		—			39,679		—
Investment securities available for sale		4,926,758		4,926,758		3,845			4,922,433		480
FHLB and Federal Reserve Bank stocks		166,774		166,774		—			166,774		—
Loans held for sale		261,410		265,914		—			265,914		—
Loans, net		15,113,613		14,873,851		—			—		14,873,851
Bank owned life insurance		556,556		556,556		—			556,556		—
Accrued interest receivable		68,386		68,386		68,386			—		—
Interest rate-related agreements		69,370		69,370		—			69,370		—
Foreign currency exchange forwards		1,341		1,341		—			1,341		—
Interest rate lock commitments to originate residential mortgage loans held for sale		7,794		7,794		—			—		7,794
Purchased options (time deposit)		3,620		3,620		—			3,620		—
Financial liabilities:							��
Noninterest-bearing demand, savings, interest-bearing demand, and money market deposits	$	14,941,971	$	14,941,971	$	—		$	—	$	14,941,971
Brokered CDs and other time deposits		1,997,894		1,997,894		—			1,997,894		—
Short-term funding		2,326,939		2,326,939		—			2,326,939		—
Long-term funding		1,015,346		1,041,550		—			1,041,550		—
Accrued interest payable		10,208		10,208		10,208			—		—
Interest rate-related agreements		75,131		75,131		—			75,131		—
Foreign currency exchange forwards		1,212		1,212		—			1,212		—
Standby letters of credit(1)		3,811		3,811		—			3,811		—
Forward commitments to sell residential mortgage loans		147		147		—			—		147
Written options (time deposit)		3,620		3,620		—			3,620		—

(1) The commitment on standby letters of credit was $276 million and $304 million at June 30, 2013 and December 31, 2012, respectively. See Note 12 for additional information on the standby letters of credit and for information on the fair value of lending-related commitments.

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

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

FHLB and Federal Reserve Bank stocks—The carrying amount is a reasonable fair value estimate for the Federal Reserve Bank and 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 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.

44

Loans, net—The fair value estimation process for the loan portfolio uses an exit price concept and reflects discounts the Corporation believes are consistent with liquidity discounts in the market place. Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as commercial and industrial, real estate construction, commercial real estate (owner occupied and investor), 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. In addition, as part of the annual goodwill impairment assessment, the Corporation may consult with an independent party as to the assumptions used and to determine that the Corporation’s valuation is consistent with the third party valuation.

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 Brokered CDs and other time deposits is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities. However, if the estimated fair value of Brokered CDs and other time deposits is less than the carrying value, the carrying value is reported as the fair value.

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

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

Interest rate-related agreements—The fair value of interest rate swap, cap, collar, and corridor agreements is determined using discounted cash flow analysis on the expected cash flows of each derivative. The Corporation also incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements.

Foreign currency exchange forwards—The fair value of the Corporation’s foreign currency exchange forwards is determined using quoted prices of foreign currency exchange forwards with similar characteristics, with consideration given to the nature of the quote and the relationship of recently evidenced market activity to the fair value estimate.

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

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

Forward commitments to sell residential mortgage loans—The Corporation relies on an internal valuation model to estimate the fair value of its forward commitments to sell residential mortgage loans (i.e., an estimate of what the Corporation would receive or pay to terminate the forward delivery contract based on market prices for similar financial instruments), which includes matching specific terms and maturities of the forward commitments against applicable investor pricing available.

Purchased and written options—The fair value of the Corporation’s purchased and written options is determined using quoted prices of the underlying stocks.

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.

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NOTE 14: Retirement Plans

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

The Corporation 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 Postretirement Plan. The Corporation has no plan assets attributable to the Postretirement Plan. The Corporation reserves the right to terminate or make changes to the Postretirement Plan at any time.

The components of net periodic benefit cost for the Pension and Postretirement Plans for the three and six months ended June 30, 2013 and 2012, and for the full year 2012 were as follows.

	Three Months Ended June 30,						Six Months Ended June 30,						Year Ended December 31,
	2013			2012			2013			2012			2012
	($ in Thousands)
Components of Net Periodic Benefit Cost
Pension Plan:
Service cost	$	2,975		$	2,612		$	5,950		$	5,225		$	10,287
Interest cost		1,548			1,612			3,095			3,225			6,547
Expected return on plan assets		(4,305	)		(3,557	)		(8,610	)		(7,115	)		(14,713	)
Amortization of prior service cost		17			18			35			35			72
Amortization of actuarial loss		1,073			640			2,145			1,280			2,708
Settlement Charge		—			—			—			—			408
Total net periodic benefit cost	$	1,308		$	1,325		$	2,615		$	2,650		$	5,309
Postretirement Plan:
Interest cost	$	40		$	48		$	80		$	95		$	182
Amortization of prior service cost		—			42			—			85			170
Total net periodic benefit cost	$	40		$	90		$	80		$	180		$	352

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 to its Pension Plan in the first half of 2013.

NOTE 15: Segment Reporting

The Corporation utilizes a risk-based internal profitability measurement system to provide strategic business unit reporting. The profitability measurement system is based on internal management methodologies designed to produce consistent results and reflect the underlying economics of the units. Certain strategic business units have been combined for segment information reporting purposes where the nature of the products and services, the type of customer and the distribution of those products and services are similar. The three reportable segments are Commercial Banking, Consumer Banking, and Risk Management and Shared Services, with no segment representing more than half of the assets, liabilities or Tier 1 common equity of the Corporation as a whole.

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The financial information of the Corporation’s segments has been compiled utilizing the accounting policies described in the Corporation’s 2012 annual report on Form 10-K with certain exceptions. The more significant of these exceptions are described herein. The Corporation allocates interest income or interest expense using a funds transfer pricing methodology that charges users of funds (assets) interest expense and credits providers of funds (liabilities, primarily deposits) with income based on the maturity, prepayment and / or repricing characteristics of the assets and liabilities. The net effect of this allocation is recorded in the Risk Management and Shared Services segment. A credit provision is allocated to segments based on the expected long-term annual net charge off rates attributable to the credit risk of loans managed by the segment during the period. In contrast, the level of the consolidated provision for loan losses is determined using the methodologies described in the Corporation’s 2012 annual report on Form 10-K to assess the overall appropriateness of the allowance for loan losses. The net effect of the credit provision is recorded in Risk Management and Shared Services. Indirect expenses incurred by certain centralized support areas are allocated to segments based on actual usage (for example, volume measurements) and other criteria. Certain types of administrative expense and bank-wide expense accruals (including amortization of core deposit and other intangible assets associated with acquisitions) are generally not allocated to segments. Income taxes are allocated to segments based on the Corporation’s estimated effective tax rate adjusted for any tax-exempt income or non-deductible expenses. Equity is allocated to the segments based on regulatory capital requirements and in proportion to an assessment of the inherent risks associated with the business of the segment (including interest, credit and operating risk).

The management accounting policies and processes utilized in compiling segment financial information are highly subjective and, unlike financial accounting, are not based on authoritative guidance similar to U.S. generally accepted accounting principles. As a result, reported segment results are not necessarily comparable with similar information reported by other financial institutions. Furthermore, changes in management structure or allocation methodologies and procedures may result in changes in previously reported segment financial data. During 2013, certain organization and methodology changes were made and, accordingly, 2012 results have been restated and presented on a comparable basis.

A description of each business segment is presented below.

Commercial Banking– The Commercial Banking segment serves a wide range of customers including, businesses, non-profits, municipalities, and financial institutions. Business customers in this segment include companies with a sales size from $10 million to over $500 million and delivery of services is provided through our regional and middle market units, our commercial real estate unit, as well as our specialized industries and commercial financial services area. The financial solutions provided to our customers include but are not limited to: (1) Lending solutions, such as business loans and lines of credit, business credit cards, commercial real estate financing, construction loans, letters of credit, leasing, and asset based lending. For our largest clients we also offer syndications to meet their lending needs (2) Deposit and cash management solutions such as business checking and interest-bearing deposit products, safe deposit and night depository services, liquidity solutions, payables and receivables solutions, and information services (3) Specialized financial services such as insurance and benefits related products and services, risk management, and international banking solutions. In serving the commercial banking segment we compete based on an in-depth understanding of our customers’ financial needs, the ability to match market competitive solutions to those needs, and the highest standards of relationship and service excellence in the delivery of these services.

Consumer Banking– The Consumer Banking segment serves individuals and small businesses (up to $10 million in sales size) through our various Retail Banking and Private Client offices, and provides companies of varying sizes with fiduciary services such as administration of pension, profit-sharing and other employee benefit plans, fiduciary and corporate agency services, and institutional asset management. The services provided to our individual and small business customers include but are not limited to: (1) Transactional solutions such as checking, debit and pre-paid cards, online banking and bill pay, and money transfer services (2) Lending solutions such as residential mortgages, home equity loans and lines of credit, business loans and lines, and personal and installment loans (3) Investable funds solutions such as savings, money market deposit accounts, IRA accounts, certificates of deposit, market linked certificates of deposit, fixed and variable annuities, full-service, discount and on-line investment brokerage; as well as trust and investment management accounts. In serving the consumer banking segment we compete based on providing a broad range of solutions to meet the needs of our customers in their entire financial lifecycle, convenient access to our services through multiple channels such as branches, phone based services, online and mobile banking, and a relationship based business model which assists our customers in navigating any changes and challenges in their financial circumstances.

47

Risk Management and Shared Services—The Risk Management and Shared Services segment includes Corporate Risk Management, Finance, Treasury, Operations and Technology functions, which are key shared functions. The segment also includes Parent Company activity, intersegment eliminations and residual revenue and expenses, representing the difference between actual amounts incurred and the amounts allocated to operating segments, including interest rate risk residuals (funds transfer pricing mismatches) and credit risk and provision residuals (long term credit charge mismatches). The earning assets within this segment include the Corporation’s investment portfolio and capital includes both allocated as well as any remaining unallocated capital.

Information about the Corporation’s segments is presented below.

Segment Income Statement Data

($ in Thousands)	Commercial Banking			Consumer Banking			Risk Management and Shared Services			Consolidated Total
Six Months Ended June 30, 2013
Net interest income	$	156,509		$	158,749		$	2,577		$	317,835
Noninterest income		47,207			109,696			9,407			166,310
Total revenue		203,716			268,445			11,984			484,145
Credit provision *		27,005			10,047			(29,052	)		8,000
Noninterest expense		91,991			210,569			34,351			336,911
Income before income taxes		84,720			47,829			6,685			139,234
Income tax expense (benefit)		29,652			16,740			(2,434	)		43,958
Net income	$	55,068		$	31,089		$	9,119		$	95,276
Return on average allocated capital (ROT1CE) **		14.5	%		11.5	%		2.4	%		10.0	%
Six Months Ended June 30, 2012
Net interest income	$	141,360		$	156,784		$	10,791		$	308,935
Noninterest income		38,909			107,199			8,289			154,397
Total revenue		180,269			263,983			19,080			463,332
Credit provision *		22,352			9,710			(32,062	)		—
Noninterest expense		95,325			215,833			24,634			335,792
Income before income taxes		62,592			38,440			26,508			127,540
Income tax expense		21,907			13,454			6,229			41,590
Net income	$	40,685		$	24,986		$	20,279		$	85,950
Return on average allocated capital (ROT1CE) **		11.4	%		9.0	%		6.7	%		9.2	%

Segment Balance Sheet Data

($ in Thousands)	Commercial Banking		Consumer Banking		Risk Management and Shared Services		Consolidated Total
Average Balances for YTD 2Q 2013
Average earning assets	$	8,335,894	$	7,258,455	$	5,222,479	$	20,816,828
Average loans		8,325,992		7,258,455		4,305		15,588,752
Average deposits		5,290,239		9,634,922		2,200,456		17,125,617
Average allocated capital (T1CE) **	$	765,701	$	544,188	$	558,807	$	1,868,696
Average Balances for YTD 2Q 2012
Average earning assets	$	7,147,023	$	7,286,684	$	4,945,181	$	19,378,888
Average loans		7,142,604		7,286,684		27,234		14,456,522
Average deposits		4,232,681		9,523,718		1,269,226		15,025,625
Average allocated capital (T1CE) **	$	718,065	$	561,000	$	533,619	$	1,812,684

* The consolidated credit provision is equal to the actual reported provision for loan losses.

** ROT1CE reflects return on average allocated Tier 1 common equity (“T1CE”). The ROT1CE for the Risk Management and Shared Services segment and the Consolidated Total is inclusive of the annualized effect of the preferred stock dividends.

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Segment Income Statement Data

($ in Thousands)	Commercial Banking			Consumer Banking			Risk Management and Shared Services			Consolidated Total
Three Months Ended June 30, 2013
Net interest income	$	79,329		$	79,557		$	1,296		$	160,182
Noninterest income		24,038			55,502			4,770			84,310
Total revenue		103,367			135,059			6,066			244,492
Credit provision *		14,570			5,103			(15,673	)		4,000
Noninterest expense		45,569			108,528			15,899			169,996
Income before income taxes		43,228			21,428			5,840			70,496
Income tax expense (benefit)		15,130			7,500			(22	)		22,608
Net income	$	28,098		$	13,928		$	5,862		$	47,888
Return on average allocated capital (ROT1CE) **		14.5	%		10.3	%		3.3	%		9.9	%
Three Months Ended June 30, 2012
Net interest income	$	69,989		$	77,250		$	7,028		$	154,267
Noninterest income		19,268			54,105			2,578			75,951
Total revenue		89,257			131,355			9,606			230,218
Credit provision *		11,427			4,837			(16,264	)		—
Noninterest expense		47,507			109,135			9,388			166,030
Income before income taxes		30,323			17,383			16,482			64,188
Income tax expense		10,613			6,084			4,174			20,871
Net income	$	19,710		$	11,299		$	12,308		$	43,317
Return on average allocated capital (ROT1CE) **		10.9	%		8.1	%		8.2	%		9.3	%

Segment Balance Sheet Data

($ in Thousands)	Commercial Banking		Consumer Banking		Risk Management and Shared Services		Consolidated Total
Average Balances for 2Q 2013
Average earning assets	$	8,513,663	$	7,218,796	$	5,218,785	$	20,951,244
Average loans		8,504,175		7,218,796		4,836		15,727,807
Average deposits		5,206,773		9,671,089		2,227,216		17,105,078
Average allocated capital (T1CE) **	$	777,270	$	545,021	$	558,535	$	1,880,826
Average Balances for 2Q 2012
Average earning assets	$	7,297,293	$	7,276,234	$	4,812,519	$	19,386,046
Average loans		7,291,508		7,276,234		34,860		14,602,602
Average deposits		4,186,745		9,541,412		1,322,527		15,050,684
Average allocated capital (T1CE) **	$	726,256	$	560,604	$	538,581	$	1,825,441

* The consolidated credit provision is equal to the actual reported provision for loan losses.

** ROT1CE reflects return on average allocated Tier 1 common equity (“T1CE”). The ROT1CE for the Risk Management and Shared Services segment and the Consolidated Total is inclusive of the annualized effect of the preferred stock dividends.

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Note 16: Accumulated Other Comprehensive Income (Loss)

The following table summarizes the components of accumulated other comprehensive income at June 30, 2013 and 2012, changes during the six and three month periods then ended, and reclassifications out of accumulated other comprehensive income during the six and three month periods ended June 30, 2013 and 2012, respectively. The amounts reclassified from accumulated other comprehensive income for the investment securities available for sale are included in investment securities gains, net on the consolidated statements of income, while the amounts reclassified from accumulated other comprehensive income for the defined benefit plans are a component of personnel expense on the consolidated statements of income.

	Investments Securities Available For Sale			Defined Benefit Pension and Postretirement Obligations			Cash Flow Hedging Relationships			Accumulated Other Comprehensive Income (Loss)
Balance January 1, 2013	$	86,109		$	(37,506	)		—		$	48,603
Other comprehensive loss before reclassifications		(121,760	)		—			—			(121,760	)
Amounts reclassified from accumulated other comprehensive income (loss)		(334	)		2,180			—			1,846
Income tax (expense) benefit		47,138			(842	)		—			46,296
Net other comprehensive income (loss) during period		(74,956	)		1,338			—			(73,618	)
Balance June 30, 2013	$	11,153		$	(36,168	)	$	—		$	(25,015	)
Balance January 1, 2012	$	99,761		$	(33,173	)	$	(986	)	$	65,602
Other comprehensive loss before reclassifications		(609	)		—			(14	)		(623	)
Amounts reclassified from accumulated other comprehensive income (loss)		(603	)		1,400			1,458			2,255
Income tax (expense) benefit		472			(546	)		(581	)		(655	)
Net other comprehensive income (loss) during period		(740	)		854			863			977
Balance June 30, 2012	$	99,021		$	(32,319	)	$	(123	)	$	66,579

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	Investments Securities Available For Sale			Defined Benefit Pension and Postretirement Obligations			Cash Flow Hedging Relationships			Accumulated Other Comprehensive Income (Loss)
Balance April 1, 2013	$	79,828		$	(36,837	)		—		$	42,991
Other comprehensive loss before reclassifications		(111,829	)		—			—			(111,829	)
Amounts reclassified from accumulated other comprehensive income (loss)		(34	)		1,090			—			1,056
Income tax (expense) benefit		43,188			(421	)		—			42,767
Net other comprehensive income (loss) during period		(68,675	)		669			—			(68,006	)
Balance June 30, 2013	$	11,153		$	(36,168	)		—		$	(25,015	)
Balance April 1, 2012	$	98,569		$	(32,746	)	$	(545	)	$	65,278
Other comprehensive income (loss) before reclassifications		1,305			—			(24	)		1,281
Amounts reclassified from accumulated other comprehensive income (loss)		(563	)		700			727			864
Income tax expense		(290	)		(273	)		(281	)		(844	)
Net other comprehensive income during period		452			427			422			1,301
Balance June 30, 2012	$	99,021		$	(32,319	)	$	(123	)	$	66,579

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

Special Note Regarding Forward-Looking Statements

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

All forward-looking statements contained in this report or which may be contained in future statements made for or on behalf of the Corporation are based upon information available at the time the statement is made and the Corporation assumes no obligation to update any forward-looking statements, except as required by federal securities law. Forward-looking statements are subject to significant risks and uncertainties, and the Corporation’s actual results may differ materially from the expected results discussed in such forward-looking statements. Factors that might cause actual results to differ from the results discussed in forward-looking statements include, but are not limited to, the risk factors in Item 1A, Risk Factors, in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2012, and as may be described from time to time in the Corporation’s subsequent SEC filings.

Overview

The following discussion and analysis is presented to assist in the understanding and evaluation of the Corporation’s financial condition and results of operations. It is intended to complement the unaudited consolidated financial statements, footnotes, and supplemental financial data appearing elsewhere in this 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 believes the following policies are both important to the portrayal of the Corporation’s financial condition and results of operations and require subjective or complex judgments and, therefore, management considers the following to be critical accounting policies. The critical accounting policies are discussed directly with the Audit Committee of the Corporation’s Board of Directors.

Allowance for Loan Losses: Management’s evaluation process used to determine the appropriateness of the allowance for loan losses is subject to the use of estimates, assumptions, and judgments. The evaluation process combines many factors: management’s ongoing review and grading of the loan portfolio, consideration of historical loan loss and delinquency experience, trends in past due and nonaccrual loans, risk characteristics of the various classifications of loans, concentrations of loans to specific borrowers or industries, existing economic conditions, the fair value of underlying collateral, and other qualitative and quantitative factors which could affect probable credit losses. Because current economic conditions can change and future events are inherently difficult to predict, the anticipated amount of estimated loan losses, and therefore the appropriateness of the allowance for loan losses, could change significantly. As an integral part of their examination process, various regulatory agencies also review the allowance for loan losses. Such agencies may require additions to the allowance for loan losses or may require that certain loan balances be charged off

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or downgraded into criticized loan categories when their credit evaluations differ from those of management, based on their judgments about information available to them at the time of their examination. The Corporation believes the level of the allowance for loan losses is appropriate as recorded in the consolidated financial statements. See Note 6, “Loans, Allowance for Loan Losses, and Credit Quality,” of the notes to consolidated financial statements and section “Allowance for Loan Losses.”

Goodwill Impairment Assessment: Goodwill is not amortized but, instead, is subject to impairment tests on at least an annual basis, and more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The impairment testing process is conducted by assigning net assets and goodwill to each reporting unit. An initial qualitative evaluation is made to assess the likelihood of impairment and determine whether further quantitative testing to calculate the fair value is necessary. When the qualitative evaluation indicates that impairment is more likely than not, quantitative testing is required whereby the fair value of each reporting unit is calculated and compared to the recorded book value, “step one”. If the calculated 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 calculated 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 2013, utilizing the qualitative assessment as permitted by recent accounting pronouncements (see Note 2, “New Accounting Pronouncements Adopted” of the notes to consolidated financial statements for additional information on this new accounting pronouncement). Factors that management considered in this assessment included macroeconomic conditions, industry and market considerations, overall financial performance (both current and projected), changes in management strategy, and changes in the composition or carrying amount of net assets. In addition, management considered the significant increases in both the Corporation’s common stock price and in the overall bank common stock index (based on the Nasdaq bank index), as well as the Corporation’s improving earnings per common share trend over the past year. Based on these assessments, management concluded that the 2013 annual qualitative impairment assessment indicated that it is more likely than not that the estimated fair value exceeded the carrying value (including goodwill) for each reporting unit. Therefore, a step one quantitative analysis was not required. The annual impairment testing in prior years was based upon a quantitative measurement of the fair value of the reporting units.

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 independent valuation from a third party which uses a discounted cash flow model to estimate the fair value of its mortgage servicing rights. The use of a 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. While the Corporation believes that the values produced by the discounted cash flow 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 and refinance rates on the value of the mortgage servicing rights asset at June 30, 2013 (holding all other factors unchanged), if refinance rates were to decrease 50 bp, the estimated value of the mortgage servicing rights asset would have been approximately $7 million (or 11%) lower. Conversely, if refinance rates were to increase 50 bp, the estimated value of the mortgage servicing rights asset would have been approximately $7 million (or 10%) higher. However, the Corporation’s potential recovery recognition due to

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valuation improvement is limited to the balance of the mortgage servicing rights valuation reserve, which was $2 million at June 30, 2013. The Corporation believes the mortgage servicing rights asset is properly recorded in the consolidated financial statements. See Note 7, “Goodwill and Other Intangible Assets,” and Note 13, “Fair Value Measurements,” of the notes to consolidated financial statements and section “Noninterest Income.”

Derivative Financial Instruments and Hedging Activities: In various aspects of its business, the Corporation uses derivative financial instruments to modify exposures to changes in interest rates and market prices for other financial instruments. Derivative instruments are required to be carried at fair value on the balance sheet with changes in the fair value recorded directly in earnings. To qualify for and maintain hedge accounting, the Corporation must meet formal documentation and effectiveness evaluation requirements both at the hedge’s inception and on an ongoing basis. The application of the hedge accounting policy requires strict adherence to documentation and effectiveness testing requirements, judgment in the assessment of hedge effectiveness, identification of similar hedged item groupings, and measurement of changes in the fair value of hedged items. If in the future derivative financial instruments used by the Corporation no longer qualify for hedge accounting, the impact on the consolidated results of operations and reported earnings could be significant. When hedge accounting is discontinued, the Corporation would continue to carry the derivative on the balance sheet at its fair value; however, for a cash flow derivative, changes in its fair value would be recorded in earnings instead of 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 13 “Fair Value Measurements,” of the notes to consolidated financial statements and section “Interest Rate Risk.”

Income Taxes: The assessment of tax assets and liabilities involves the use of estimates, assumptions, interpretations, and judgment concerning certain accounting pronouncements and federal and state tax codes. There can be no assurance that future events, such as court decisions or positions of federal and state taxing authorities, will not differ from management’s current assessment, the impact of which could be significant to the consolidated results of operations and reported earnings. Quarterly assessments are performed to determine if valuation allowances are necessary. Assessing the need for, or sufficiency of, a valuation allowance requires management to evaluate all available evidence, both positive and negative, including the recent trend of quarterly earnings. Positive evidence necessary to overcome the negative evidence includes whether future taxable income in sufficient amounts and character within the carryback and carryforward periods is available under the tax law, including the use of tax planning strategies. When negative evidence (e.g., cumulative losses in recent years, history of operating loss or tax credit carryforwards expiring unused) exists, more positive evidence than negative evidence will be necessary. The Corporation has concluded that based on the level of positive evidence, it is more likely than not that the deferred tax asset will be realized. However, there is no guarantee that the tax benefits associated with the deferred tax assets will be fully realized. The Corporation believes the tax assets and liabilities are properly recorded in the consolidated financial statements. See also Note 9, “Income Taxes,” of the notes to consolidated financial statements and section “Income Taxes.”

Segment Review

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

The financial information of the Corporation’s segments was compiled utilizing the accounting policies described in Note 15 of the notes to consolidated financial statements. The management accounting policies and processes utilized in compiling segment financial information are highly subjective and unlike financial accounting, are not based on authoritative guidance similar to U.S. generally accepted accounting principles. As a result, reported segments and the financial information of the reported segments are not necessarily comparable with similar information reported by other financial institutions. Furthermore, changes in management structure or allocation methodologies and procedures may result in changes in previously reported segment financial data. During the first half of 2013, certain organization and methodology changes were made and, accordingly, 2012 results have been restated and presented on a comparable basis.

Year to Date Segment Review

The Commercial Banking segment consists of lending and deposit solutions to businesses, governments / municipalities, and financial institutions, and the support to deliver, fund and manage such banking solutions. The Commercial Banking segment had net income of $55 million for the first half of 2013, up $14 million compared to $41 million for the comparable period in 2012. The Corporation

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began providing resources in late 2011 to grow this segment, including investments to expand into new markets (Cincinnati, Indianapolis, and Michigan) and new industry lending segments (power, oil and gas). Primarily as a result of these investments, and lower other real estate owned losses and write-downs during the first half of 2013, segment revenue increased by $24 million to $204 million for the first half of 2013 compared to $180 million for the first half of 2012. The credit provision for loans increased $5 million to $27 million during the first half of 2013 due to the growth in the segment’s loan balances, partially offset by improvement in credit quality as compared to the first half of 2012. Total noninterest expense for the first half of 2013 was $92 million, down $3 million from $95 million in the comparable period in 2012 as slightly higher direct costs were more than offset by lower Corporate overhead charges. Average loan balances were $8.3 billion for the first half of 2013, up $1.2 billion from an average balance of $7.1 billion for the first half of 2012, and average deposit balances were $5.3 billion for the first half of 2013, up $1.1 billion from average deposits of $4.2 billion in the first half of 2012, reflecting our investments and strategy to expand and grow the Commercial Banking segment. Average allocated capital increased $48 million to $766 million for the first half of 2013 reflecting the increase in the segment’s loan balances offset by an improvement in credit quality as compared to the first half of 2012.

The Consumer Banking segment consists of lending and deposit solutions to individuals and small businesses and also provides a variety of investment and fiduciary products and services. The Consumer Banking segment had net income of $31 million in the first half of 2013, up $6 million compared to $25 million in the first half of 2012. Earnings increased as segment revenue grew $4 million to $268 million for the first half of 2013, primarily due to higher mortgage banking income. The credit provision for loans was level at $10 million for the first half of 2013 and 2012. Total noninterest expense decreased $5 million to $211 million for the first half of 2013, as slightly higher direct costs were more than offset by lower allocated occupancy costs, reflecting a reduction in our branch network from branch closures. Average loan balances were level at $7.3 billion for both the first half of 2013 and 2012. Average deposits were $9.6 billion for the first half of 2013, up $111 million from $9.5 billion in the first half of 2012. Average allocated capital decreased $17 million to $544 million for the first half of 2013.

Risk Management and Shared Services had net income of $9 million in the first half of 2013, down $11 million compared to $20 million for the comparable period in 2012. The primary components of the decrease were a $3 million higher credit provision, reflecting the higher provision for loan losses at the consolidated level and a $9 million increase in noninterest expense primarily due to higher unallocated occupancy costs for unused and vacant space as a result of retail branch closures. Average earning asset balances were $5.2 billion for the first half of 2013, up $266 million from an average balance of $5.0 billion during the first half of 2012, reflecting the growth in the Corporation’s investment portfolio.

Comparable Quarter Segment Review

The Commercial Banking segment had net income of $28 million for the second quarter of 2013, up $8 million compared to $20 million for the comparable quarter in 2012. The Corporation began providing resources to grow this segment in late 2011, including investments to expand into new markets (Cincinnati, Indianapolis, and Michigan) and new industry lending segments (power, oil and gas). Primarily as a result of these investments, segment revenue increased by $14 million to $103 million during the second quarter of 2013 compared to $89 million for the second quarter of 2012. The credit provision for loans increased $3 million to $15 million during the second quarter of 2013 due to the growth in the segment’s loan balances, partially offset by improvement in credit quality as compared to the second quarter of 2012. Total noninterest expense for the second quarter of 2013 was $46 million, down $2 million from $48 million in the comparable quarter in 2012 as higher direct costs were more than offset by lower Corporate overhead charges. Average loan balances were $8.5 billion for the second quarter of 2013, up $1.2 billion from an average balance of $7.3 billion for the second quarter of 2012, and average deposit balances were $5.2 billion for the second quarter of 2013, up $1 billion from average deposits of $4.2 billion in the second quarter of 2012, reflecting our investments and strategy to expand and grow the Commercial Banking segment. Average allocated capital increased $51 million to $777 million for the second quarter of 2013 reflecting the increase in the segment’s loan balances offset by an improvement in credit quality as compared to the second quarter of 2012.

The Consumer Banking segment had net income of $14 million in the second quarter of 2013, up $3 million compared to $11 million in the second quarter of 2012. Earnings increased as segment revenue grew $4 million to $135 million for the second quarter of 2013, primarily due to higher mortgage banking income. The credit provision for loans was level for the second quarter of 2013 and 2012 at $5 million. Total noninterest expense was down $1 million as increases in direct expenses were more than offset by a reduction in allocated occupancy costs due to the reduction in our branch network from branch closures Average loan balances were down $57 million to $7.2 billion for the second quarter of 2013 compared to $7.3 billion for the second quarter 2012. Average deposits were $9.7 billion for the second quarter of 2013, up $130 million from $9.5 billion in the second quarter of 2012. Average allocated capital decreased $16 million to $545 million for the second quarter of 2013.

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Risk Management and Shared Services had net income of $6 million in the second quarter of 2013, down $6 million compared to $12 million for the comparable quarter in 2012. Primary components of the decrease were $1 million higher credit provision and a $7 million increase in noninterest expense, largely due to higher unallocated occupancy costs for unused and vacant space as a result of retail branch closures. Average deposit balances were $2.2 billion for the second quarter of 2013, up $905 million from an average balance of $1.3 billion during the second quarter of 2012, primarily from funding loan growth. Average allocated capital increased $20 million to $559 million for the second quarter of 2013.

Results of Operations – Summary

The Corporation recorded net income of $95 million for the six months ended June 30, 2013, compared to net income of $86 million for the six months ended June 30, 2012. Net income available to common equity was $93 million for the six months ended June 30, 2013, or net income of $0.55 for both basic and diluted earnings per common share. Comparatively, net income available to common equity for the six months ended June 30, 2012, was $83 million, or net income of $0.48 for both basic and diluted earnings per common share. The net interest margin for the six months ended June 30, 2013 was 3.17% compared to 3.31% for the six months ended June 30, 2012.

TABLE 1

Summary Results of Operations: Trends

($ in Thousands, except per share data)

	2nd Qtr 2013			1st Qtr 2013			4th Qtr 2012			3rd Qtr 2012			2nd Qtr 2012
Net income (Quarter)	$	47,888		$	47,388		$	46,628		$	46,395		$	43,317
Net income (Year-to-date)		95,276			47,388			178,973			132,345			85,950
Net income available to common equity (Quarter)	$	46,588		$	46,088		$	45,328		$	45,095		$	42,017
Net income available to common equity (Year-to-date)		92,676			46,088			173,773			128,445			83,350
Earnings per common share – basic (Quarter)	$	0.28		$	0.27		$	0.26		$	0.26		$	0.24
Earnings per common share – basic (Year-to-date)		0.55			0.27			1.00			0.74			0.48
Earnings per common share – diluted (Quarter)	$	0.28		$	0.27		$	0.26		$	0.26		$	0.24
Earnings per common share – diluted (Year-to-date)		0.55			0.27			1.00			0.74			0.48
Return on average assets (Quarter)		0.82	%		0.83	%		0.83	%		0.84	%		0.80	%
Return on average assets (Year-to-date)		0.83			0.83			0.81			0.81			0.80
Return on average equity (Quarter)		6.58	%		6.60	%		6.23	%		6.29	%		5.98	%
Return on average equity (Year-to-date)		6.59			6.60			6.07			6.07			5.95
Return on average common equity (Quarter)		6.54	%		6.56	%		6.19	%		6.25	%		5.93	%
Return on average common equity (Year-to-date)		6.55			6.56			6.02			6.02			5.90
Return on average Tier 1 common equity (Quarter)(1)		9.94	%		10.07	%		9.61	%		9.69	%		9.26	%
Return on average Tier 1 common equity (Year-to-date)(1)		10.00			10.07			9.45			9.39			9.25
Efficiency ratio (Quarter)(2)		69.54	%		69.74	%		73.71	%		72.81	%		72.30	%
Efficiency ratio (Year-to-date)(2)		69.64			69.74			72.92			72.65			72.57
Efficiency ratio, fully taxable equivalent (Quarter)(2)		67.73	%		68.10	%		71.65	%		69.79	%		68.77	%
Efficiency ratio, fully taxable equivalent (Year-to-date)(2)		67.91			68.10			69.99			69.43			69.25
Net interest margin (Quarter)		3.16	%		3.17	%		3.32	%		3.26	%		3.30	%
Net interest margin (Year-to-date)		3.17			3.17			3.30			3.29			3.31

(1) Return on average Tier 1 common equity = Net income available to common equity divided by average Tier 1 capital excluding qualifying perpetual preferred stock and qualifying trust preferred securities. 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

	2nd Qtr 2013			1st Qtr 2013			4th Qtr 2012			3rd Qtr 2012			2nd Qtr 2012
Efficiency ratio (Quarter)(a)		69.54	%		69.74	%		73.71	%		72.81	%		72.30	%
Taxable equivalent adjustment (Quarter)		(1.39	)		(1.46	)		(1.57	)		(1.61	)		(1.62	)
Asset gains (losses), net (Quarter)		(0.01	)		0.24			(0.06	)		(0.98	)		(1.47	)
Other intangible amortization (Quarter)		(0.41	)		(0.42	)		(0.43	)		(0.43	)		(0.44	)
Efficiency ratio, fully taxable equivalent (Quarter)(b)		67.73	%		68.10	%		71.65	%		69.79	%		68.77	%
Efficiency ratio (Year-to-date)(a)		69.64	%		69.74	%		72.92	%		72.65	%		72.57	%
Taxable equivalent adjustment (Year-to-date)		(1.43	)		(1.46	)		(1.60	)		(1.62	)		(1.62	)
Asset gains (losses), net (Year-to-date)		0.12			0.24			(0.90	)		(1.16	)		(1.26	)
Other intangible amortization (Year-to-date)		(0.42	)		(0.42	)		(0.43	)		(0.44	)		(0.44	)
Efficiency ratio, fully taxable equivalent (Year-to-date)(b)		67.91	%		68.10	%		69.99	%		69.43	%		69.25	%

(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, excluding other intangible amortization, divided by the sum of taxable equivalent net interest income plus noninterest income, excluding investment securities gains / losses, net and asset 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 loans 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 gains / losses, net).

Net Interest Income and Net Interest Margin

Net interest income on a taxable equivalent basis for the six months ended June 30, 2013, was $328 million, an increase of $8 million (3%) versus the first six months of 2012. The increase in taxable equivalent net interest income was attributable to favorable volume variances (as balance sheet changes in both volume and mix increased taxable equivalent net interest income by $29 million), partially offset by unfavorable rate variances (as the impact of changes in the interest rate environment and product pricing reduced taxable equivalent net interest income by $21 million).

The net interest margin for the first half of 2013 was 3.17%, 14 bp lower than 3.31% for the same period in 2012. This comparable period decrease was comprised of a 9 bp decrease in interest rate spread (34 bp decrease in yield on earning assets offset by a decrease in the cost of interest-bearing liabilities of 25 bp) and a 5 bp lower contribution from net free funds.

The Federal Reserve left interest rates unchanged during 2012 and the first six months of 2013. For the remainder of 2013, the Corporation anticipates continued compression on the net interest margin.

The yield on earning assets was 3.49% for the first half of 2013, 34 bp lower than the comparable period last year. Loan yields were down 34 bp, (to 3.80%), due to the repricing of adjustable rate loans and competitive pricing pressures in a low interest rate environment. The yield on investment securities and other short-term investments decreased 33 bp (to 2.58%), and was also impacted by the low interest rate environment and prepayment speeds of mortgage-related securities purchased at a premium.

The rate on interest-bearing liabilities of 0.43% for the first half of 2013 was 25 bp lower than the same period in 2012. Rates on interest-bearing deposits were down 15 bp (to 0.25%, reflecting the low rate environment and a reduction of higher cost deposit products). The cost of short and long-term funding decreased 33 bp (to 1.21%), with the cost of long-term funding down 38 bp (due to the early redemption of higher costing junior subordinated debentures during 2012) while the cost of short-term funding decreased 14 bp.

Average earning assets were $20.8 billion for the first half of 2013, an increase of $1.4 billion (7%) from the comparable period last year. On average, loan balances increased $1.1 billion, including increases in commercial loans (up $1.2 billion) and residential mortgage loans (up $386 million), while retail loans decreased (down $473 million). Average investment securities and other short-term investments increased $306 million.

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Average interest-bearing liabilities of $15.9 billion for the first half of 2013 increased $933 million from the first half of 2012. On average, interest-bearing deposits grew $1.6 billion (primarily attributable to a $1.2 billion increase in money market accounts and a $714 million increase in interest-bearing demand deposits, partially offset by a $432 million decrease in time deposits), while noninterest-bearing demand deposits (a principal component of net free funds) were up $499 million. Average short and long-term funding decreased $667 million between the comparable six month periods, attributable to a $496 million decrease in securities sold under agreements to repurchase (“customer funding”) (driven by pricing strategies to shift funds away from customer funding and into more traditional deposit products) and a $213 million decrease in junior subordinated debentures.

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TABLE 2

Net Interest Income Analysis

($ in Thousands)

	Six Months Ended June 30, 2013							Six Months Ended June 30, 2012
	Average Balance		Interest Income/ Expense		Average Yield/ Rate			Average Balance		Interest Income/ Expense		Average Yield/ Rate
Earning assets:
Loans:(1)(2)(3)
Commercial and business lending	$	5,738,404	$	104,325		3.66	%	$	4,922,827	$	97,569		3.98	%
Commercial real estate lending		3,657,667		71,668		3.95			3,253,668		69,345		4.28
Total commercial		9,396,071		175,993		3.77			8,176,495		166,914		4.10
Residential mortgage		3,642,207		60,595		3.33			3,256,480		61,230		3.76
Retail		2,550,474		57,672		4.55			3,023,547		69,979		4.65
Total loans		15,588,752		294,260		3.80			14,456,522		298,123		4.14
Investment securities		4,904,764		65,058		2.65			4,507,200		69,083		3.07
Other short-term investments		323,312		2,480		1.54			415,166		2,509		1.21
Investments and other(1)		5,228,076		67,538		2.58			4,922,366		71,592		2.91
Total earning assets		20,816,828		361,798		3.49			19,378,888		369,715		3.83
Other assets, net		2,356,375							2,292,982
Total assets	$	23,173,203						$	21,671,870
Interest-bearing liabilities:
Interest-bearing deposits:
Savings deposits	$	1,175,053	$	444		0.08	%	$	1,069,499	$	396		0.07	%
Interest-bearing demand deposits		2,823,969		2,369		0.17			2,109,947		1,861		0.18
Money market deposits		6,987,134		6,854		0.20			5,774,305		7,302		0.25
Time deposits		1,950,631		6,643		0.69			2,382,435		13,030		1.10
Total interest-bearing deposits		12,936,787		16,310		0.25			11,336,186		22,589		0.40
Federal funds purchased and securities sold under agreements to repurchase		728,238		743		0.21			1,228,842		1,379		0.23
Other short-term funding		1,326,792		857		0.13			1,181,692		2,253		0.38
Long-term funding		862,627		15,967		3.71			1,174,489		24,002		4.09
Total short and long-term funding		2,917,657		17,567		1.21			3,585,023		27,634		1.54
Total interest-bearing liabilities		15,854,444		33,877		0.43			14,921,209		50,223		0.68
Noninterest-bearing demand deposits		4,188,830							3,689,439
Other liabilities		212,662							158,468
Stockholders’ equity		2,917,267							2,902,754
Total liabilities and equity	$	23,173,203						$	21,671,870
Interest rate spread						3.06	%						3.15	%
Net free funds						0.11							0.16
Net interest income, taxable equivalent, and net interest margin			$	327,921		3.17	%			$	319,492		3.31	%
Taxable equivalent adjustment				10,086							10,557
Net interest income			$	317,835						$	308,935

(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.

59

TABLE 2

Net Interest Income Analysis

($ in Thousands)

	Three Months Ended June 30, 2013							Three Months Ended June 30, 2012
	Average Balance		Interest Income/ Expense		Average Yield/ Rate			Average Balance		Interest Income/ Expense		Average Yield/ Rate
Earning assets:
Loans:(1)(2)(3)
Commercial and business lending	$	5,860,416	$	53,613		3.67	%	$	5,016,701	$	48,584		3.89	%
Commercial real estate lending		3,722,108		35,804		3.86			3,320,186		34,843		4.22
Total commercial		9,582,524		89,417		3.74			8,336,887		83,427		4.02
Residential mortgage		3,661,742		30,113		3.29			3,273,873		30,266		3.70
Retail		2,483,541		28,291		4.56			2,991,842		34,468		4.63
Total loans		15,727,807		147,821		3.77			14,602,602		148,161		4.07
Investment securities		4,917,671		32,303		2.63			4,402,800		34,416		3.13
Other short-term investments		305,766		1,232		1.61			380,644		1,262		1.33
Investments and other(1)		5,223,437		33,535		2.57			4,783,444		35,678		2.98
Total earning assets		20,951,244		181,356		3.47			19,386,046		183,839		3.80
Other assets, net		2,354,976							2,298,554
Total assets	$	23,306,220						$	21,684,600
Interest-bearing liabilities:
Interest-bearing deposits:
Savings deposits	$	1,207,959	$	236		0.08	%	$	1,109,609		211		0.08	%
Interest-bearing demand deposits		2,867,524		1,190		0.17			2,105,440		917		0.18
Money market deposits		6,930,554		3,239		0.19			5,860,043		3,744		0.26
Time deposits		1,907,337		3,104		0.65			2,280,568		5,681		1.00
Total interest-bearing deposits		12,913,374		7,769		0.24			11,355,660		10,553		0.37
Federal funds purchased and securities sold under agreements to repurchase		677,489		333		0.20			1,114,964		612		0.22
Other short-term funding		1,631,644		525		0.13			1,279,319		1,197		0.38
Long-term funding		765,514		7,551		3.95			1,172,063		11,956		4.08
Total short and long-term funding		3,074,647		8,409		1.09			3,566,346		13,765		1.55
Total interest-bearing liabilities		15,988,021		16,178		0.41			14,922,006		24,318		0.65
Noninterest-bearing demand deposits		4,191,704							3,695,024
Other liabilities		205,501							152,248
Stockholders’ equity		2,920,994							2,915,322
Total liabilities and equity	$	23,306,220						$	21,684,600
Interest rate spread						3.06	%						3.15	%
Net free funds						0.10							0.15
Net interest income, taxable equivalent, and net interest margin			$	165,178		3.16	%			$	159,521		3.30	%
Taxable equivalent adjustment				4,996							5,254
Net interest income			$	160,182						$	154,267

(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.

60

Provision for Loan Losses

The provision for loan losses for the first half of 2013 was $8 million, compared to $0 for the first half of 2012 and $3 million for the full year of 2012. Net charge offs were $28 million for the first half of 2013, compared to $45 million for the first half of 2012 and $84 million for the full year of 2012. Annualized net charge offs as a percent of average loans for the first half of 2013 were 0.36%, compared to 0.63% for the first half of 2012 and 0.57% for the full year of 2012. At June 30, 2013, the allowance for loan losses was $277 million, down from $333 million at June 30, 2012 and $297 million at December 31, 2012. The ratio of the allowance for loan losses to total loans at June 30, 2013, was 1.76%, compared to 2.26% at June 30, 2012 and 1.93% at December 31, 2012. Nonaccrual loans at June 30, 2013 were $217 million, compared to $318 million at June 30, 2012, and $253 million at December 31, 2012. See Tables 7 and 8.

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

Noninterest Income

Noninterest income for the first half of 2013 was $166 million, up $12 million (8%) from the first half of 2012. For the remainder of 2013, the Corporation expects modest improvement in core fee-based revenues and lower mortgage banking revenues.

TABLE 3

Noninterest Income

($ in Thousands)

	2nd Qtr. 2013			2nd Qtr. 2012			Dollar Change			Percent Change			YTD 2013			YTD 2012			Dollar Change			Percent Change
Trust service fees	$	11,405		$	10,125		$	1,280			12.6	%	$	22,315		$	19,912		$	2,403			12.1	%
Service charges on deposit accounts		17,443			16,768			675			4.0			34,272			34,810			(538	)		(1.5	)
Card-based and other nondeposit fees		12,591			12,084			507			4.2			24,541			22,963			1,578			6.9
Insurance commissions		9,631			12,912			(3,281	)		(25.4	)		21,394			24,502			(3,108	)		(12.7	)
Brokerage and annuity commissions		3,688			4,206			(518	)		(12.3	)		7,204			8,333			(1,129	)		(13.5	)
Core fee-based revenue		54,758			56,095			(1,337	)		(2.4	)		109,726			110,520			(794	)		(0.7	)
Mortgage banking income		15,399			26,500			(11,101	)		(41.9	)		32,937			48,200			(15,263	)		(31.7	)
Mortgage servicing rights expense		(3,864	)		9,765			(13,629	)		N/M			(4,091	)		13,811			(17,902	)		N/M
Mortgage banking, net		19,263			16,735			2,528			15.1			37,028			34,389			2,639			7.7
Capital market fees, net		5,074			2,673			2,401			89.8			7,657			6,389			1,268			19.8
Bank owned life insurance (“BOLI”) income		3,281			3,164			117			3.7			6,251			7,456			(1,205	)		(16.2	)
Other		1,944			1,705			239			14.0			4,522			3,618			904			25.0
Subtotal		84,320			80,372			3,948			4.9			165,184			162,372			2,812			1.7
Asset gains (losses), net		(44	)		(4,984	)		4,940			(99.1	)		792			(8,578	)		9,370			(109.2	)
Investment securities gains, net		34			563			(529	)		(94.0	)		334			603			(269	)		(44.6	)
Total noninterest income	$	84,310		$	75,951		$	8,359			11.0	%	$	166,310		$	154,397		$	11,913			7.7	%

N/M – Not meaningful.

Trust service fees were $22 million for the first half of 2013, up $2 million (12%) from the comparable period in 2012. The market value of assets under management at June 30, 2013 and 2012 was $6.9 billion and $5.9 billion, respectively.

Service charges on deposit accounts were $34 million for the first half of 2013, down slightly, $1 million (2%) from the first half of 2012. The decrease was primarily attributable to lower nonsufficient funds / overdraft fees.

61

Card-based and other nondeposit fees were $25 million for the first half of 2013, up $2 million (7%) from the first half of 2012, primarily attributable to higher commercial loan service charges due to year over year growth in commercial loan balances. Insurance commissions were $21 million, down $3 million (13%) from the first half of 2012, due to a $3 million reserve established in 2013 related to third party insurance products sold in prior years. Brokerage and annuity commissions were down $1 million (14%) for the comparable six month periods of 2013 and 2012, attributable to lower fixed and variable annuity commissions.

Net mortgage banking income was $37 million for the first half of 2013 and $34 million for the first half of 2012. Net mortgage banking consists of gross mortgage banking income less mortgage servicing rights expense. Gross mortgage banking income (which includes servicing fees and the gain or loss on sales of mortgage loans to the secondary market, related fees and fair value marks on derivatives (collectively “gains on sales and related income”)) was $33 million for the first half of 2013, a decrease of $15 million compared to the first half of 2012. This decrease was primarily attributable to lower gains on sales and related income (down $12 million) and a $4 million decrease due to the recognition of a repurchase reserve provision for losses related to repurchases and loss reimbursements on previously sold mortgage loans in the first half of 2013 versus none in the first half of 2012 (see Note 12, “Commitments, Off-Balance Sheet Arrangements and Contingent Liabilities” of the notes to consolidated financial statements for additional information concerning this repurchase reserve). Secondary mortgage production was $1.5 billion for the first half of 2013, compared to $1.3 billion for the first half of 2012.

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 $18 million lower than the comparable six month period in 2012, with a $15 million favorable change to the valuation reserve (comprised of a $13 million recovery to the valuation reserve for the first half of 2013 compared to a $2 million addition to the valuation reserve for the first half of 2012) and a $3 million reduction in 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 and higher amortization. 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 and lower amortization. Mortgage servicing rights, net of any valuation allowance, are carried in other intangible assets, net, on the consolidated balance sheets at the lower of amortized cost or estimated fair value. At June 30, 2013, the mortgage servicing rights asset, net of its valuation allowance, was $61 million, representing 79 bp of the $7.8 billion servicing portfolio, compared to a net mortgage servicing rights asset of $47 million, representing 63 bp of the $7.5 billion servicing portfolio at June 30, 2012. Mortgage servicing rights are considered a critical accounting policy given that estimating their fair value involves a discounted cash flow model and assumptions that involve judgment, particularly of estimated prepayment speeds of the underlying mortgages serviced and the overall level of interest rates. See section “Critical Accounting Policies,” as well as Note 7 “Goodwill and Other Intangible Assets,” and Note 13, “Fair Value Measurements,” of the notes to consolidated financial statements for additional disclosure.

Capital market fees, net (which include fee income from foreign currency and interest rate risk related services provided to our customers) were $8 million for the first half of 2013, compared to $6 million for the first half of 2012 reflecting a $3 million favorable change in the credit risk of interest-rate related derivative instruments, partially offset by a $1 million decline in fees due to lower commercial lending volumes and related lower customer demand for interest rate swaps. Bank owned life insurance income was $6 million, down $1 million from the first half of 2012, primarily due to death benefits received during the first half of 2012, as well as the lower interest rates on the underlying assets of the BOLI investment. Other income was $5 million, an increase of $1 million versus the first half of 2012, primarily due to an increase in limited partnership income. Net asset gains of $1 million for the first half of 2013 were primarily attributable to the sale of miscellaneous assets, partially offset by losses on sales and other write-downs of other real estate owned. Net asset losses of $9 million for the first half of 2012 were primarily attributable to a $6 million write-down on software placed into production during the second quarter of 2012, $6 million of losses on sales and other write-downs on other real estate owned, and a $3 million impairment charge on certain limited partnership investments, partially offset by a $6 million gain on the sale of three retail branches in rural western Illinois.

Noninterest Expense

Noninterest expense was $337 million for the first half of 2013, up $1 million (less than 1%) from the comparable period in 2012. Personnel expense was up $9 million (5%), while nonpersonnel noninterest expenses were down $8 million (6%) on a combined basis. For the remainder of 2013, the Corporation expects flat year over year noninterest expense with reduced regulatory costs offset by continued investments in the franchise.

62

TABLE 4

Noninterest Expense

($ in Thousands)

	2nd Qtr. 2013		2nd Qtr. 2012		Dollar Change			Percent Change			YTD 2013		YTD 2012		Dollar Change			Percent Change
Personnel expense	$	99,791	$	93,819	$	5,972			6.4	%	$	197,698	$	188,100	$	9,598			5.1	%
Occupancy		14,305		14,008		297			2.1			29,967		29,187		780			2.7
Equipment		6,462		5,719		743			13.0			12,629		11,187		1,442			12.9
Data processing		12,651		11,304		1,347			11.9			24,159		20,820		3,339			16.0
Business development and advertising		5,028		5,468		(440	)		(8.0	)		9,565		10,849		(1,284	)		(11.8	)
Other intangible asset amortization		1,011		1,049		(38	)		(3.6	)		2,022		2,098		(76	)		(3.6	)
Loan expense		3,044		2,948		96			3.3			6,328		5,858		470			8.0
Legal and professional fees		5,483		5,657		(174	)		(3.1	)		10,828		15,372		(4,544	)		(29.6	)
Losses other than loans		1,799		2,060		(261	)		(12.7	)		1,483		5,610		(4,127	)		(73.6	)
Foreclosure / OREO expense		2,302		4,343		(2,041	)		(47.0	)		4,724		7,705		(2,981	)		(38.7	)
FDIC expense		4,395		4,778		(383	)		(8.0	)		9,827		9,648		179			1.9
Other		13,725		14,877		(1,152	)		(7.7	)		27,681		29,358		(1,677	)		(5.7	)
Total noninterest expense	$	169,996	$	166,030	$	3,966			2.4	%	$	336,911	$	335,792	$	1,119			0.3	%

Personnel expense (which includes salary-related expenses and fringe benefit expenses) was $198 million for the first half of 2013, up $9 million (5%) versus the first half of 2012. Average full-time equivalent employees were 4,816 for the first six months of 2013, down 4% from 4,998 for the comparable six month period of 2012. Salary-related expenses increased $11 million (8%). This increase was primarily the result of higher compensation (up $5 million or 4%) and higher performance based incentives (up $4 million or 10%). Fringe benefit expenses were down $2 million (5%) versus the first half of 2012, primarily due to a decrease in health insurance costs.

Nonpersonnel noninterest expenses on a combined basis were $139 million, down $8 million (6%) compared to the first half of 2012. Occupancy, equipment and data processing were up $6 million (9%), due to strategic investments in our branch network, systems and infrastructure. Legal and professional fees for the first half of 2013 were $11 million, down $5 million (30%) from the comparable six month period in 2012 due to a decrease in consultant costs related to certain BSA compliance issues. Losses other than loans decreased $4 million from the first half of 2012 primarily due to a $4 million decrease in the provision for losses on unfunded commitments and a $2 million decrease in the provision for reinsurance losses, as well as the receipt of a $2.5 million settlement in 2012 with the Corporation’s insurance carrier towards the Overdraft litigation. Foreclosure / OREO expenses of $5 million decreased $3 million, primarily attributable to a decline in legal and collection expenses related to the improvement in credit quality. All remaining noninterest expense categories on a combined basis were down $2 million (4%) compared to the first half of 2012.

Income Taxes

For the first half of 2013, the Corporation recognized income tax expense of $44 million, compared to income tax expense of $42 million for the first half of 2012. The effective tax rate was 31.57% for the first half of 2013, compared to an effective tax rate of 32.61% for the first half of 2012.

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.”

63

Balance Sheet

At June 30, 2013, total assets were $23.6 billion, up $129 million from December 31, 2012. Loans of $15.7 billion at June 30, 2013 were up $336 million from December 31, 2012, with increases in commercial loans of $446 million and residential mortgage loans of $155 million, partially offset by a decrease of $233 million in home equity loans. See section “Credit Risk” for a detailed discussion of the changes in the loan portfolio and the related credit risk management for each loan type. Investment securities were $4.9 billion at June 30, 2013 down $36 million from year-end 2012.

At June 30, 2013, total deposits of $17.1 billion were up $193 million from December 31, 2012. Since December 31, 2012, money market deposits increased $522 million and interest- bearing demand deposits increased $248 million, while other time deposits were down $212 million. Noninterest-bearing demand deposits decreased $500 million to $4.3 billion and represented 25% of total deposits, down from 28% of total deposits at December 31, 2012. Short and long-term funding of $3.4 billion was up $37 million since year-end 2012, with an increase of $438 million in short-term funding offset by a decrease of $401 million in long-term funding.

Since June 30, 2012, loans increased $1.0 billion, with commercial loans up $1.1 billion and residential mortgage loans up $453 million, offset by a $443 million decline in home equity loans. Since June 30, 2012, deposits increased $2.0 billion, attributable to a $1.2 billion increase in money market deposits, a $724 million increase in interest bearing demand deposits, and a $385 million increase in noninterest-bearing demand deposits, partially offset by a $414 million decrease in other time deposits. Given the increase in deposit balances, short and long-term funding declined $425 million, including a $722 million decrease in customer funding and the repayment of $186 million of junior subordinated debentures, partially offset by a net increase of $250 million in FHLB advances and the issuance of $155 million of senior notes.

TABLE 5

Period End Loan Composition

($ in Thousands)

	June 30, 2013					March 31, 2013					December 31, 2012					September 30, 2012					June 30, 2012
			% of					% of					% of					% of					% of
	Amount		Total			Amount		Total			Amount		Total			Amount		Total			Amount		Total
Commercial and industrial	$	4,752,838		30	%	$	4,651,143		30	%	$	4,502,021		29	%	$	4,265,356		29	%	$	4,076,370		28	%
Commercial real estate—owner occupied		1,174,866		8			1,199,513		8			1,219,747		8			1,197,517		8			1,116,815		8
Lease financing		55,084		—			57,908		—			64,196		1			60,818		—			62,750		—
Commercial and business lending		5,982,788		38			5,908,564		38			5,785,964		38			5,523,691		37			5,255,935		36
Commercial real estate—investor		3,010,992		19			2,900,167		18			2,906,759		19			2,787,158		19			2,810,521		19
Real estate construction		800,569		5			729,145		5			655,381		4			611,186		4			612,556		4
Commercial real estate lending		3,811,561		24			3,629,312		23			3,562,140		23			3,398,344		23			3,423,077		23
Total commercial		9,794,349		62			9,537,876		61			9,348,104		61			8,922,035		60			8,679,012		59
Home equity revolving lines of credit		888,162		6			904,187		6			936,065		6			988,800		7			1,009,634		7
Home equity loans first liens		863,779		5			940,017		6			1,013,757		6			1,079,075		7			1,116,093		8
Home equity loans junior liens		234,292		2			254,203		2			269,672		2			289,025		2			303,867		2
Home equity		1,986,233		13			2,098,407		14			2,219,494		14			2,356,900		16			2,429,594		17
Installment		434,029		3			447,445		3			466,727		3			482,451		3			510,831		3
Residential mortgage		3,531,988		22			3,467,834		22			3,376,697		22			3,204,828		21			3,079,465		21
Total consumer		5,952,250		38			6,013,686		39			6,062,918		39			6,044,179		40			6,019,890		41
Total loans	$	15,746,599		100	%	$	15,551,562		100	%	$	15,411,022		100	%	$	14,966,214		100	%	$	14,698,902		100	%
Farmland	$	14,867		1	%	$	15,761		1	%	$	17,730		1	%	$	18,471		1	%	$	23,814		1	%
Multi-family		965,373		32			905,268		31			905,372		31			827,096		30			802,212		28
Non-owner occupied		2,030,752		67			1,979,138		68			1,983,657		68			1,941,591		69			1,984,495		71
Commercial real estate—investor	$	3,010,992		100	%	$	2,900,167		100	%	$	2,906,759		100	%	$	2,787,158		100	%	$	2,810,521		100	%
1-4 family construction	$	238,336		30	%	$	209,290		29	%	$	176,874		27	%	$	139,431		23	%	$	138,160		23	%
All other construction		562,233		70			519,855		71			478,507		73			471,755		77			474,396		77
Real estate construction	$	800,569		100	%	$	729,145		100	%	$	655,381		100	%	$	611,186		100	%	$	612,556		100	%

64

Credit Risk

Total loans were $15.7 billion at June 30, 2013, an increase of $336 million or 2% from December 31, 2012. Commercial and business loans were $6.0 billion, up $197 million (3%) to represent 38% of total loans at June 30, 2013. Commercial real estate totaled $3.8 billion at June 30, 2013 and represented 24% of total loans, an increase of $249 million (7%) from December 31, 2012. Consumer loans were $6.0 billion, down $110 million (2%) from December 31, 2012, and represented 38% of total loans at June 30, 2013.

The Corporation has long-term guidelines relative to the proportion of Commercial and Business, Commercial Real Estate, and Consumer loans within the overall loan portfolio, with each targeted to represent 30-40% of the overall loan portfolio. The targeted long-term guidelines were unchanged during 2012 and the first half of 2013. Furthermore, certain sub-asset classes within the respective portfolios were further defined and dollar limitations were placed on these sub-portfolios. These guidelines and limits are reviewed quarterly and approved annually by the Enterprise Risk Committee of the Corporation’s Board of Directors. These guidelines and limits are designed to create balance and diversification within the loan portfolios.

The commercial and business lending portfolio, which consists of commercial and business loans and owner occupied commercial real estate loans, was $6.0 billion at June 30, 2013, up $197 million (3%) since year-end 2012. The commercial and business lending classification primarily includes commercial loans to middle market companies and small businesses. At June 30, 2013, the largest industry groups within the commercial and business loan category included the manufacturing sector which represented 8% of total loans and 20% of the total commercial and business loan portfolio. The next two largest industry groups within the commercial and business loan category included the finance and insurance sector, which represented 4% of total loans and 11% of the total commercial and business lending portfolio and the wholesale trade sector, which represented 4% of total loans and 10% of the total commercial and business loan portfolio at June 30, 2013. The remaining portfolio is spread over a diverse range of industries. The credit risk related to commercial loans is largely influenced by general economic conditions and the resulting impact on a borrower’s operations or on the value of underlying collateral, if any.

The commercial real estate lending portfolio, which consists of investor commercial real estate and construction loans, totaled $3.8 billion at June 30, 2013, up $249 million (7%) from December 31, 2012. Within the commercial real estate lending portfolio, commercial real estate lending to investors totaled $3.0 billion at June 30, 2013, an increase of $104 million (4%) from December 31, 2012. Commercial real estate primarily includes commercial-based loans to investors that are secured by commercial income properties or multifamily projects. Commercial real estate loans are typically intermediate to long-term financings. Loans of this type are mainly secured by commercial income properties or multifamily projects. Credit risk is managed in a similar manner to commercial and industrial loans and real estate construction by employing sound underwriting guidelines, lending primarily to borrowers in local markets and businesses, periodically evaluating the underlying collateral, and formally reviewing the borrower’s financial soundness and relationship on an ongoing basis. Real estate construction loans were $801 million, an increase of $145 million (22%) compared to December 31, 2012. Loans in this classification are primarily short-term or interim loans that provide financing for the acquisition or development of commercial income properties, multifamily projects or residential development, both single family and condominium. Real estate construction loans are made to developers and project managers who are generally well known to the Corporation, and have prior successful project experience. The credit risk associated with real estate construction loans is generally confined to specific geographic areas but is also influenced by general economic conditions. The Corporation controls the credit risk on these types of loans by making loans in familiar markets to developers, underwriting the loans to meet the requirements of institutional investors in the secondary market, reviewing the merits of individual projects, controlling loan structure, and monitoring project progress and construction advances.

The Corporation’s current lending standards for commercial real estate and real estate construction lending are determined by property type and specifically address many criteria, including: maximum loan amounts, maximum loan-to-value (“LTV”), requirements for pre-leasing and / or presales, minimum borrower equity, and maximum loan to cost. Currently, the maximum standard for LTV is 80%, with lower limits established for certain higher risk types, such as raw land which has a 50% LTV maximum. The Corporation’s LTV guidelines are in compliance with regulatory supervisory limits. In most cases, for real estate construction loans, the loan amounts include interest reserves, which are built into the loans and sized to fund loan payments through construction and lease up and / or sell out.

Consumer loans totaled $6.0 billion at June 30, 2013, down $110 million (2%) compared to December 31, 2012. Loans in this classification include residential mortgage, home equity and installment loans. Residential mortgage loans totaled $3.5 billion at June 30, 2013, up $155 million (5%) from December 31, 2012. Residential mortgage loans include conventional first lien home mortgages

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and the Corporation generally limits the maximum loan to 80% of collateral value without credit enhancement (e.g. PMI insurance). As part of management’s historical practice of originating and servicing residential mortgage loans, generally the Corporation’s 30-year, fixed-rate residential real estate mortgage loans are sold in the secondary market with servicing rights retained. The Corporation also retains a portion of its 15-year and under, fixed-rate residential real estate mortgages in its loan portfolio. At June 30, 2013, the residential mortgage portfolio was comprised of $1.3 billion of fixed-rate residential real estate mortgages and $2.2 billion of adjustable-rate residential real estate mortgages.

Home equity totaled $2.0 billion at June 30, 2013 down $233 million (11%) compared to December 31, 2012, and consists of home equity lines, as well as home equity loans, approximately half of which are first lien positions. Loans and lines in a junior position at June 30, 2013 included approximately 36% for which the Corporation also owned or serviced the related first lien loan and approximately 64% where the Corporation did not service the related first lien loan.

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

The Corporation’s underwriting and risk-based pricing guidelines for home equity lines and loans consist of a combination of both borrower FICO and the original LTV of the property securing the loan. Currently, for home equity products, the maximum acceptable LTV is 90% for customers with FICO scores exceeding 760. Home equity loans generally have a 20 year term and are fixed rate with principal and interest payments required. As of June 30, 2013, approximately 40% of the home equity loan first liens have a remaining maturity of more than 10 years. Home equity lines are variable rate, interest only lines of credit which do not require the payment of principal during the initial revolving period, after which principal payments are required. Based upon outstanding balances at June 30, 2013, the following table presents the periods when home equity lines of credit revolving periods are scheduled to end.

Home Equity Lines of Credit - Revolving Period End Dates	$ in Thousands
Less than 1 year	$	5,134
1 - 3 years		4,114
3 - 5 years		6,940
5 - 10 years		145,698
Over 10 years		726,276
Total home equity revolving lines of credit	$	888,162

Installment loans totaled $434 million at June 30, 2013 down $32 million (7%) compared to December 31, 2012, and consist of educational loans, as well as short-term and other personal installment loans. The Corporation had $351 million and $374 million of education loans at June 30, 2013 and December 31, 2012, respectively, the majority of which are government guaranteed. Credit risk for these types of loans is generally influenced by general economic conditions, the characteristics of individual borrowers, and the nature of the loan collateral. Risks of loss are generally on smaller average balances per loan spread over many borrowers. Once charged off, there is usually less opportunity for recovery on these smaller retail loans. Credit risk is primarily controlled by reviewing the creditworthiness of the borrowers, monitoring payment histories, and taking appropriate collateral and guaranty positions.

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

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

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

The loan portfolio is widely diversified by types of borrowers, industry groups, and market areas within our core footprint. Significant loan concentrations are considered to exist for a financial institution when there are amounts loaned to numerous borrowers engaged in similar activities that would cause them to be similarly impacted by economic or other conditions. At June 30, 2013, no significant concentrations existed in the Corporation’s portfolio in excess of 10% of total loans.

TABLE 6

Period End Deposit and Customer Funding Composition

($ in Thousands)

	June 30, 2013					March 31, 2013					December 31, 2012					September 30, 2012					June 30, 2012
			% of					% of					% of					% of					% of
	Amount		Total			Amount		Total			Amount		Total			Amount		Total			Amount		Total
Noninterest-bearing demand	$	4,259,776		25	%	$	4,453,109		26	%	$	4,759,556		28	%	$	4,320,437		26	%	$	3,874,429		26	%
Savings		1,211,567		7			1,197,134		7			1,109,861		7			1,115,783		7			1,117,593		7
Interest-bearing demand		2,802,277		17			2,966,934		17			2,554,479		15			2,230,740		14			2,078,037		14
Money market		7,040,317		41			6,836,678		39			6,518,075		38			6,682,640		41			5,822,449		39
Brokered CDs		59,206		—			49,919		—			26,270		—			33,612		—			41,104		—
Other time		1,759,293		10			1,917,520		11			1,971,624		12			2,067,380		12			2,173,259		14
Total deposits	$	17,132,436		100	%	$	17,421,294		100	%	$	16,939,865		100	%	$	16,450,592		100	%	$	15,106,871		100	%
Customer repo sweeps		489,700					617,038					564,038					600,225					592,203
Customer repo term		—					4,882					115,032					448,782					619,897
Total customer funding		489,700					621,920					679,070					1,049,007					1,212,100
Total deposits and customer funding	$	17,622,136				$	18,043,214				$	17,618,935				$	17,499,599				$	16,318,971
Network transaction deposits included above in interest-bearing demand and money market	$	2,135,306				$	2,054,714				$	1,684,745				$	1,740,434				$	1,234,010
Total network transaction deposits and Brokered CDs		2,194,512					2,104,633					1,711,015					1,774,046					1,275,114
Total deposits and customer funding, excluding Brokered CDs and network transaction deposits	$	15,427,624				$	15,938,581				$	15,907,920				$	15,725,553				$	15,043,857

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 ongoing review of loan payment performance. Active asset quality administration, including early problem loan identification and timely resolution of problems, aids in the management of credit risk and minimization of loan losses. Credit risk management for each loan type is discussed briefly in the section entitled “Credit Risk.”

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 5), net charge offs (see Table 7) and nonperforming assets (see Table 8). The Corporation’s process, designed to assess the appropriateness of the allowance for loan losses, includes an allocation methodology, as well as management’s ongoing review and grading of the loan portfolio into criticized and non-criticized

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categories. The allocation methodology focuses on evaluation of facts and issues related to specific loans, management’s ongoing review and grading of the loan portfolio, consideration of historical loan loss and delinquency experience on each portfolio category, trends in past due and nonaccrual loans, the level of potential problem loans, the risk characteristics of the various classifications of loans, changes in the size and character of the loan portfolio, concentrations of loans to specific borrowers or industries, existing economic conditions, the fair value of underlying collateral, and other qualitative and quantitative factors which could affect potential credit losses. Management considers the allowance for loan losses a critical accounting policy (see section “Critical Accounting Policies”), as assessing these numerous factors involves significant judgment.

The methodology used for the allocation of the allowance for loan losses at June 30, 2013 and December 31, 2012 was generally comparable, whereby the Corporation segregated its loss factors (used for both criticized and non-criticized loan categories) into a component primarily based on historical loss rates and a component primarily based on other qualitative factors that may affect loan collectability. Management allocates the allowance for loan losses by pools of risk within each loan portfolio. The allocation methodology consists of the following components: First, a valuation allowance estimate is established for specifically identified commercial and consumer loans determined by the Corporation to be impaired, using discounted cash flows, estimated fair value of underlying collateral, and / or other data available. Second, management allocates the allowance for loan losses with loss factors, for criticized loan pools by loan type as well as for non-criticized loan pools by loan type, primarily based on historical loss rates after considering loan type, historical loss and delinquency experience, and industry statistics. Loans that have been criticized are considered to have a higher risk of default than non-criticized loans, as circumstances were present to support the lower loan grade, warranting higher loss factors. The loss factors applied in the methodology are periodically re-evaluated and adjusted to reflect changes in historical loss levels or other risks. Lastly, management allocates the allowance for loan losses to absorb unrecognized losses that may not be provided for by the other components due to other factors evaluated by management, such as limitations within the credit risk grading process, known current economic or business conditions that may not yet show in trends, industry or other concentrations with current issues that impose higher inherent risks than are reflected in the loss factors, and other relevant considerations. Because each of the criteria used is subject to change, the allocation of the allowance for loan losses is made for analytical purposes and is not necessarily indicative of the trend of future loan losses in any particular category. The total allowance for loan losses is available to absorb losses from any segment of the loan portfolio.

At June 30, 2013, the allowance for loan losses was $277 million compared to $333 million at June 30, 2012, and $297 million at December 31, 2012. At June 30, 2013, the allowance for loan losses to total loans was 1.76% and covered 127% of nonaccrual loans, compared to 2.26% and 105%, respectively, at June 30, 2012, and 1.93% and 118%, respectively, at December 31, 2012. The provision for loan losses for the first half of 2013 was $8 million, compared to $0 for the first half of 2012, and $3 million for the full year 2012. Net charge offs were $28 million for the first half of 2013, $45 million for the comparable period ended June 30, 2012, and $84 million for the full year 2012. The ratio of net charge offs to average loans on an annualized basis was 0.36%, 0.63%, and 0.57% for the six months ended June 30, 2013, and 2012, and the full year 2012, respectively. Tables 7 and 8 provide additional information regarding activity in the allowance for loan losses, impaired loans, and nonperforming assets. See Note 6, “Loans, Allowance for Loan Losses, and Credit Quality,” of the notes to consolidated financial statements for additional allowance for loan losses disclosures.

Credit quality continued to improve during the first half of 2013. Nonaccrual loans declined to $217 million (representing 1.38% of total loans), down 32% from June 30, 2012 and down 14% from December 31, 2012, due to portfolio improvements, including a lower level of loans moving into the nonaccrual and potential problem loan categories. Loans past due 30-89 days totaled $59 million at June 30, 2013, an increase of 24% from June 30, 2012 and a decrease of 7% from December 31, 2012, while potential problem loans declined to $310 million, a reduction from both the first half of 2012 and year-end 2012. For the remainder of 2013, the Corporation expects modest improvement in credit trends and the provision for loan losses to increase based on quarterly loan growth.

Management believes the level of allowance for loan losses to be appropriate at June 30, 2013 and December 31, 2012.

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

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TABLE 7

Allowance for Loan Losses

($ in Thousands)

	At and For the Six Months Ended June 30,										At and For the  Year Ended December 31,
	2013					2012					2012
Allowance for Loan Losses:
Balance at beginning of period	$			297,409		$			378,151		$			378,151
Provision for loan losses				8,000			—					3,000
Charge offs				(49,032	)		(61,599)					(117,046)
Recoveries				20,841			16,106					33,304
Net charge offs				(28,191	)		(45,493)					(83,742)
Balance at end of period	$			277,218		$			332,658		$			297,409
Net loan charge offs:				(A	)				(A	)				(A	)
Commercial and industrial	$	2,173		10		$	18,416		98		$	24,877		63
Commercial real estate—owner occupied		3,092		53			1,579		29			3,627		33
Lease financing		4		1			(1,836	)	N/M			(1,102	)	N/M
Commercial and business lending		5,269		19			18,159		74			27,402		53
Commercial real estate—investor		3,162		22			7,531		56			9,204		33
Real estate construction		1,297		36			788		28			1,459		25
Commercial real estate lending		4,459		25			8,319		51			10,663		32
Total commercial		9,728		21			26,478		65			38,065		45
Home equity revolving lines of credit		6,127		136			8,241		160			16,011		159
Home equity loans 1st liens		1,719		37			1,584		28			3,700		34
Home equity loans junior liens		3,991		319			4,409		275			10,516		344
Home equity		11,837		114			14,234		115			30,227		125
Installment		243		11			472		18			1,823		36
Residential mortgage		6,383		35			4,309		27			13,627		41
Total consumer		18,463		60			19,015		61			45,677		73
Total net charge offs	$	28,191		36		$	45,493		63		$	83,742		57
CRE & Construction Net Charge Off Detail:				(A	)				(A	)				(A	)
Farmland	$	366		N/M		$	53		42		$	(47	)	(21	)
Multi-family		409		9			(51	)	(1	)		103		1
Non-owner occupied		2,387		24			7,529		80			9,148		47
Commercial real estate—investor	$	3,162		22		$	7,531		56		$	9,204		33
1-4 family construction	$	(208	)	(20	)	$	(716	)	(121	)	$	(1,541	)	N/M
All other construction		1,505		58			1,504		68			3,000		66
Real estate construction	$	1,297		36		$	788		28		$	1,459		25
(A)   –Annualized ratio of net charge offs to average loans by loan type in basis points.
N/M - Not meaningful.
Ratios:
Allowance for loan losses to total loans		1.76%					2.26%					1.93%
Allowance for loan losses to net charge offs (annualized)		4.9x					3.6x					3.6x

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TABLE 7 (continued)

Allowance for Loan Losses

($ in Thousands)

	June 30,					March 31,					December 31,					September 30,					June 30,
Quarterly Trends:	2013					2013					2012					2012					2012
Allowance for Loan Losses:
Balance at beginning of period	$			286,923		$			297,409		$			315,150		$			332,658		$			356,298
Provision for loan losses		4,000					4,000					3,000					—					—
Charge offs		(21,904)					(27,128)					(30,417)					(25,030)					(30,340)
Recoveries		8,199					12,642					9,676					7,522					6,700
Net charge offs		(13,705)					(14,486)					(20,741)					(17,508)					(23,640)
Balance at end of period	$			277,218		$			286,923		$			297,409		$			315,150		$			332,658
Net loan charge offs:				(A	)				(A	)				(A	)				(A	)				(A	)
Commercial and industrial	$	1,477		13		$	696		6		$	2,630		25		$	3,831		37		$	14,544		151
Commercial real estate—owner occupied		1,574		54			1,518		51			2,056		69			(8	)	(0	)		1,164		43
Lease financing		16		12			(12	)	(8	)		754		480	��		(20	)	(13	)		—		—
Commercial and business lending		3,067		21			2,202		16			5,440		40			3,803		29			15,708		126
Commercial real estate—investor		2,999		41			163		2			(232	)	(3	)		1,905		27			177		3
Real estate construction		(95	)	(5	)		1,392		82			858		54			(187	)	(12	)		558		40
Commercial real estate lending		2,904		31			1,555		18			626		7			1,718		20			735		9
Total commercial		5,971		25			3,757		17			6,066		27			5,521		25			16,443		79
Home equity revolving lines of credit		2,512		112			3,615		159			3,590		148			4,180		167			2,637		104
Home equity loans first liens		954		42			765		32			1,060		40			1,056		38			778		28
Home equity loans junior liens		2,034		336			1,957		303			3,421		486			2,686		361			1,869		240
Home equity		5,500		108			6,337		119			8,071		140			7,922		132			5,284		86
Installment		66		6			177		16			1,027		86			324		26			371		28
Residential mortgage		2,168		24			4,215		47			5,577		64			3,741		45			1,542		19
Total consumer		7,734		50			10,729		70			14,675		93			11,987		77			7,197		46
Total net charge offs	$	13,705		35		$	14,486		38		$	20,741		55		$	17,508		47		$	23,640		65
CRE & Construction Net Charge Off Detail:				(A	)				(A	)				(A	)				(A	)				(A	)
Farmland	$	(32	)	(84	)		398		N/M			—		—			(100	)	(195	)		—		—
Multi-family		942		40			(533	)	(24	)		99		5			55		3			15		1
Non-owner occupied		2,089		42			298		6			(331	)	(7	)		1,950		39			162		3
Commercial real estate—investor	$	2,999		41			163		2			(232	)	(3	)		1,905		27			177		3
1-4 family construction	$	(349	)	(62	)		141		29			(295	)	(73	)		(530	)	(145	)		(111	)	(35	)
All other construction		254		19			1,251		103			1,153		98			343		30			669		62
Real estate construction	$	(95	)	(5	)		1,392		82			858		54			(187	)	(12	)		558		40

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

N/M – Not meaningful.

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TABLE 8

Nonperforming Assets

($ in Thousands)

	June 30, 2013				March 31, 2013				December 31, 2012				September 30, 2012				June 30, 2012
Nonperforming assets:
Nonaccrual loans:
Commercial	$	136,576			$	137,548			$	152,456			$	177,988			$	212,997
Residential mortgage		51,250				52,181				59,359				58,824				60,292
Retail		29,667				35,707				41,053				41,360				44,583
Total nonaccrual loans (NALs)		217,493				225,436				252,868				278,172				317,872
Other real estate owned (OREO)		27,407				35,156				34,900				36,053				40,029
Total nonperforming assets (NPAs)	$	244,900			$	260,592			$	287,768			$	314,225			$	357,901
Accruing loans past due 90 days or more:
Commercial	$	770			$	4,595			$	1,036			$	1,667			$	4,563
Residential mortgage		—				144				144				—				—
Retail		778				951				1,109				667				661
Total accruing loans past due 90 days or more	$	1,548			$	5,690			$	2,289			$	2,334			$	5,224
Restructured loans (accruing):
Commercial	$	87,970			$	88,932			$	88,182			$	103,531			$	90,677
Residential mortgage		20,593				20,941				22,284				22,121				21,302
Retail		10,503				10,220				10,621				10,139				10,250
Total restructured loans (accruing)	$	119,066			$	120,093			$	121,087			$	135,791			$	122,229
Nonaccrual restructured loans (included in nonaccrual loans)	$	70,354			$	67,811			$	80,590			$	74,251			$	86,395
Ratios:
Nonaccrual loans to total loans		1.38	%			1.45	%			1.64	%			1.86	%			2.16	%
NPAs to total loans plus OREO		1.55	%			1.67	%			1.86	%			2.09	%			2.43	%
NPAs to total assets		1.04	%			1.12	%			1.23	%			1.38	%			1.62	%
Allowance for loan losses to NALs		127.46	%			127.27	%			117.61	%			113.29	%			104.65	%
Allowance for loan losses to total loans		1.76	%			1.84	%			1.93	%			2.11	%			2.26	%
Nonperforming assets by type:			(A	)			(A	)			(A	)			(A	)			(A	)
Commercial and industrial	$	30,302	1	%	$	33,242	1	%	$	39,182	1	%	$	41,694	1	%	$	46,111	1	%
Commercial real estate—owner occupied		24,003	2	%		23,199	2	%		24,254	2	%		27,161	2	%		33,417	3	%
Lease financing		72	—	%		2,165	4	%		3,031	5	%		5,927	10	%		8,260	13	%
Commercial and business lending		54,377	1	%		58,606	1	%		66,467	1	%		74,782	1	%		87,788	2	%
Commercial real estate—investor		60,780	2	%		56,776	2	%		58,687	2	%		71,522	3	%		88,806	3	%
Real estate construction		21,419	3	%		22,166	3	%		27,302	4	%		31,684	5	%		36,403	6	%
Commercial real estate lending		82,199	2	%		78,942	2	%		85,989	2	%		103,206	3	%		125,209	4	%
Total commercial		136,576	1	%		137,548	1	%		152,456	2	%		177,988	2	%		212,997	2	%
Home equity revolving lines of credit		12,940	1	%		15,914	2	%		20,446	2	%		19,242	2	%		22,651	2	%
Home equity loans first liens		7,898	1	%		8,626	1	%		8,717	1	%		9,425	1	%		7,870	1	%
Home equity loans junior liens		7,296	3	%		9,405	4	%		10,052	4	%		9,800	3	%		11,015	4	%
Home equity		28,134	1	%		33,945	2	%		39,215	2	%		38,467	2	%		41,536	2	%
Installment		1,533	—	%		1,762	—	%		1,838	—	%		2,893	1	%		3,047	1	%
Residential mortgage		51,250	1	%		52,181	2	%		59,359	2	%		58,824	2	%		60,292	2	%
Total consumer		80,917	1	%		87,888	1	%		100,412	2	%		100,184	2	%		104,875	2	%
Total nonaccrual loans		217,493	1	%		225,436	1	%		252,868	2	%		278,172	2	%		317,872	2	%
Commercial real estate owned		11,696				15,142				16,664				15,984				18,670
Residential real estate owned		9,087				12,078				12,748				11,219				11,309
Bank properties real estate owned		6,624				7,936				5,488				8,850				10,050
Other real estate owned		27,407				35,156				34,900				36,053				40,029
Total nonperforming assets	$	244,900			$	260,592			$	287,768			$	314,225			$	357,901
Commercial real estate & Real estate construction NALs Detail:
Farmland	$	70	—	%	$	—	—	%	$	803	5	%	$	1,132	6	%	$	1,327	6	%
Multi-family		6,726	1	%		8,306	1	%		9,328	1	%		11,448	1	%		8,194	1	%
Non-owner occupied		53,984	3	%		48,470	2	%		48,556	2	%		58,942	3	%		79,285	4	%
Commercial real estate—investor	$	60,780	2	%	$	56,776	2	%	$	58,687	2	%	$	71,522	3	%	$	88,806	3	%
1-4 family construction	$	14,222	6	%	$	14,538	7	%	$	16,639	9	%	$	16,725	12	%	$	19,049	14	%
All other construction		7,197	1	%		7,628	1	%		10,663	2	%		14,959	3	%		17,354	4	%
Real estate construction	$	21,419	3	%	$	22,166	3	%	$	27,302	4	%	$	31,684	5	%	$	36,403	6	%

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

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TABLE 8 (continued)

Nonperforming Assets

($ in Thousands)

	June 30, 2013		March 31, 2013		December 31, 2012		September 30, 2012		June 30, 2012
Loans 30-89 days past due by type:
Commercial and industrial	$	8,516	$	10,263	$	11,339	$	3,795	$	4,465
Commercial real estate—owner occupied		8,105		6,804		11,053		4,843		2,125
Lease financing		57		283		12		17		39
Commercial and business lending		16,678		17,350		22,404		8,655		6,629
Commercial real estate—investor		18,269		25,201		13,472		8,809		12,854
Real estate construction		797		2,287		3,155		1,254		1,618
Commercial real estate lending		19,066		27,488		16,627		10,063		14,472
Total commercial		35,744		44,838		39,031		18,718		21,101
Home equity revolving lines of credit		7,739		1,832		7,829		9,543		7,298
Home equity loans first liens		1,857		1,869		1,457		1,535		3,906
Home equity loans junior liens		2,709		2,848		4,252		3,745		4,098
Home equity		12,305		6,549		13,538		14,823		15,302
Installment		1,434		2,500		2,109		1,693		1,558
Residential mortgage		9,920		8,793		9,403		6,878		9,836
Total consumer		23,659		17,842		25,050		23,394		26,696
Total loans past due 30-89 days	$	59,403	$	62,680	$	64,081	$	42,112	$	47,797
Commercial real estate & Real estate construction loans 30-89 days past due detail:
Farmland	$	455	$	172	$	101	$	15	$	—
Multi-family		14,533		15,612		1,901		469		3,713
Non-owner occupied		3,281		9,417		11,470		8,325		9,141
Commercial real estate—investor	$	18,269	$	25,201	$	13,472	$	8,809	$	12,854
1-4 family construction	$	449	$	1,088	$	503	$	809	$	1,191
All other construction		348		1,199		2,652		445		427
Real estate construction	$	797	$	2,287	$	3,155	$	1,254	$	1,618
Potential problem loans by type:
Commercial and industrial	$	127,382	$	127,367	$	128,434	$	120,888	$	121,764
Commercial real estate—owner occupied		75,074		93,098		99,592		120,034		108,508
Lease financing		279		251		264		214		324
Commercial and business lending		202,735		220,716		228,290		241,136		230,596
Commercial real estate—investor		89,342		101,775		107,068		133,046		142,453
Real estate construction		9,184		10,040		13,092		18,477		23,905
Commercial real estate lending		98,526		111,815		120,160		151,523		166,358
Total commercial		301,261		332,531		348,450		392,659		396,954
Home equity revolving lines of credit		308		450		520		518		919
Home equity loans first liens		—		—		—		—		—
Home equity loans junior liens		2,307		2,871		3,150		2,825		3,254
Home equity		2,615		3,321		3,670		3,343		4,173
Installment		83		99		111		131		127
Residential mortgage		5,917		7,882		8,762		8,197		8,658
Total consumer		8,615		11,302		12,543		11,671		12,958
Total potential problem loans	$	309,876	$	343,833	$	360,993	$	404,330	$	409,912

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

Management is committed to a proactive nonaccrual and problem loan identification philosophy. This philosophy is implemented through the ongoing monitoring and review of all pools of risk in the loan portfolio to ensure that problem loans are identified quickly and the risk of loss is minimized. Table 8 provides detailed information regarding nonperforming assets, which include nonaccrual loans and other real estate owned.

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

Nonaccrual loans were $217 million at June 30, 2013, compared to $318 million at June 30, 2012 and $253 million at December 31, 2012. As shown in Table 8, total nonaccrual loans were down $100 million (32%) since June 30, 2012, with commercial nonaccrual loans down $76 million while consumer-related nonaccrual loans were down $24 million. Since December 31, 2012, total nonaccrual loans decreased $35 million (14%), with commercial nonaccrual loans down $16 million and consumer nonaccrual loans down $19 million. The ratio of nonaccrual loans to total loans was 1.38% at June 30, 2013, compared to 2.16% at June 30, 2012 and 1.64% at December 31, 2012. The Corporation’s allowance for loan losses to nonaccrual loans was 127% at June 30, 2013, up from 105% at June 30, 2012 and 118% at December 31, 2012, respectively.

Accruing Loans Past Due 90 Days or More: Loans past due 90 days or more but still accruing interest are classified as such where the underlying loans are both well secured (the collateral value is sufficient to cover principal and accrued interest) and are in the process of collection. At June 30, 2013, accruing loans 90 days or more past due totaled $2 million compared to $5 million at June 30, 2012 and $2 million at December 31, 2012, respectively.

Troubled Debt Restructurings (“Restructured Loans”): Loans are considered restructured loans if concessions have been granted to borrowers that are experiencing financial difficulty. The concessions granted generally involve the modification of terms of the loan, such as changes in payment structure 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. Nonaccrual restructured loans are included and treated with all other nonaccrual loans. In addition, all accruing restructured loans are reported as troubled debt restructurings, which are considered and accounted for as impaired loans. Generally, restructured loans remain on nonaccrual until the customer has attained a sustained period of repayment performance under the modified loan terms (generally a minimum of six months). However, performance prior to the restructuring, or significant events that coincide with the restructuring, are considered in assessing whether the borrower can meet the new terms and whether the loan should be returned to or maintained on accrual status. If the borrower’s ability to meet the revised payment schedule is not reasonably assured, the loan remains on nonaccrual status.

At June 30, 2013, the Corporation had total restructured loans of $189 million (including $70 million classified as nonaccrual and $119 million performing in accordance with the modified terms), compared to $209 million at June 30, 2012 (including $87 million classified as nonaccrual and $122 million performing in accordance with the modified terms) and $202 million at December 31, 2012 (including $81 million classified as nonaccrual and $121 million performing in accordance with the modified terms).

Potential Problem Loans: The level of potential problem loans is another predominant factor in determining the relative level of risk in the loan portfolio and in determining the appropriate level of the allowance for loan losses. Potential problem loans are generally defined by management to include loans rated as substandard by management but that are not considered impaired (i.e., nonaccrual loans and accruing troubled debt restructurings); however, there are circumstances present to create doubt as to the ability of the borrower to comply with present repayment terms. The decision of management to include performing loans in potential problem loans does not necessarily mean that the Corporation expects losses to occur, but that management recognizes a higher degree of risk associated with these loans. The loans that have been reported as potential problem loans are predominantly commercial loans covering a diverse range of businesses and real estate property types. At June 30, 2013, potential problem loans totaled $310 million, compared to $410 million at June 30, 2012 and $361 million at December 31, 2012, respectively.

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Other Real Estate Owned: Other real estate owned was $27 million at June 30, 2013, compared to $40 million at June 30, 2012 and $35 million at December 31, 2012, respectively. Write-downs on other real estate owned were $2 million and $5 million for the first half of 2013 and 2012, respectively, and $8 million for the full year 2012. Management actively seeks to ensure properties held are monitored to minimize the Corporation’s risk of loss.

Liquidity

The objective of liquidity management is to ensure that the Corporation has the ability to generate sufficient cash or cash equivalents in a timely and cost-effective manner to satisfy the cash flow requirements of depositors and borrowers and to meet its other commitments as they fall due, including the ability to pay dividends to shareholders, service debt, invest in subsidiaries or acquisitions, and satisfy other operating requirements. In addition to satisfying cash flow requirements in the ordinary course of business, the Corporation actively monitors and manages its liquidity position to ensure sufficient resources are available to meet cash flow requirements in adverse situations.

The Corporation’s internal liquidity management framework includes measurement of several key elements, such as deposit funding as a percent of total assets and liquid asset levels. Strong capital ratios, credit quality, and core earnings are essential to maintaining cost-effective access to wholesale funding markets. A downgrade or loss in credit ratings could have an impact on the Corporation’s ability to access wholesale funding at favorable interest rates. In addition to static liquidity measures, the Corporation performs dynamic scenario analysis in accordance with industry best practices. Measures have been established to ensure the Corporation has sufficient high quality short-term liquidity to meet cash flow requirements under stressed scenarios. At June 30, 2013 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”), Fitch Investors (“Fitch”), and Dominion Bond Rating Service (“DBRS”). 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 senior credit ratings of the Parent Company and its subsidiary bank are displayed below.

	June 30, 2013
	Moody’s	S&P	Fitch	DBRS
Bank short-term	P2	—	F2	R2H
Bank long-term	A3	BBB+	BBB-	BBBH
Corporation short-term	P2	—	F3	R2M
Corporation long-term	Baa1	BBB	BBB-	BBB
Outlook	Stable	Stable	POS	Stable

The Corporation also has multiple funding sources that could be used to increase liquidity and provide additional financial flexibility. The Parent Company filed a “shelf” registration in January 2012, under which the Parent Company may offer any combination of the following securities, either separately or in units: debt securities, preferred stock, depositary shares, common stock, and warrants. In September 2012, the Corporation issued $155 million of senior notes due in March 2014 which bear a 1.875% fixed coupon. The Parent Company also has a $200 million commercial paper program, of which, $69 million was outstanding at June 30, 2013.

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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 Parent Company received dividends of $246 million during the first half of 2013 from subsidiaries.

The Bank has established federal funds lines with counterparty banks and the ability to borrow from the Federal Home Loan Bank ($2.2 billion of Federal Home Loan Bank advances were outstanding at June 30, 2013). The Bank also has significant excess loan and investment securities collateral which could be pledged to secure additional deposits or to counterparty banks, the Federal Home Loan Bank or other parties as necessary. Associated Bank may also issue institutional certificates of deposit, network transaction deposits, and brokered certificates of deposit.

Investment securities are an important tool to the Corporation’s liquidity objective. As of June 30, 2013, the majority of investment securities are classified as available for sale, with a very small portion of municipal securities (approximately 2% of the total investment securities portfolio) classified as held to maturity. Of the $4.9 billion investment securities portfolio at June 30, 2013, a portion of these securities were pledged to secure $2.1 billion of collateralized deposits and $490 million of repurchase agreements and for other purposes as required or permitted by law. The majority of the remaining investment securities of $2.0 billion could be pledged or sold to enhance liquidity, if necessary.

For the six months ended June 30, 2013, net cash provided by operating activities and financing activities was $193 million and $137 million, respectively, while net cash used in investing activities was $513 million, for a net decrease in cash and cash equivalents of $183 million since year-end 2012. During the first half of 2013, loans increased $336 million and investment securities decreased $36 million. On the funding side, deposits increased $193 million and short-term funding increased $438 million, while long-term funding decreased $401 million.

For the six months ended June 30, 2012, net cash provided by operating and financing activities was $236 million and $84 million, respectively, while net cash used in investing activities was $338 million, for a net decrease in cash and cash equivalents of $18 million since year-end 2011. During the first half of 2012, loans increased $668 million and investment securities decreased $416 million, as run-off from the investment securities portfolio was utilized to fund loan growth. On the funding side, short-term funding decreased $139 million while deposits and long-term funding were relatively unchanged.

Quantitative and Qualitative Disclosures about Market Risk

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

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

Interest Rate Risk

In order to measure earnings sensitivity to changing market interest rates, the Corporation uses a simulation model to measure the impact of various interest rate shocks and other yield curve scenarios on earnings and the fair value of the financial assets and liabilities of the Corporation. The Corporation compares earnings between a static balance sheet scenario and balance sheets with projected growth scenarios to quantify potential impacts on such earnings of various balance sheet management and business strategies.

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Simulation of earnings: Determining the sensitivity of short-term future earnings is accomplished through the use of simulation modeling. Assumptions involving projected balance sheet growth, market spreads, prepayments of rate-sensitive instruments, and the cash flows from maturing assets and liabilities are incorporated in these simulation analyses. These analyses are designed to project net interest income based on various interest rate scenarios, compared to a baseline scenario. The Corporation runs numerous scenarios including instantaneous and gradual changes to market interest rates as well as yield curve slope changes. It then compares such scenarios to the baseline scenario to quantify its earnings sensitivity.

The resulting simulations for June 30, 2013, and December 31, 2012 projected that net interest income would increase by approximately 1.2% and 3.4%, respectively, if rates rose by a 100 bp shock. As of June 30, 2013, the simulations of earnings results were within the Corporation’s interest rate risk policy.

Market value of equity: The Corporation uses the market value of equity as a measure to quantify market risk from the impact of interest rates. The market value of equity is the fair value of assets, liabilities, and off-balance sheet financial instruments derived from the present value of the future cash flows. While the net interest income simulation model highlights exposures over a short time horizon, the market value of equity incorporates all cash flows over all of the balance sheet and derivative positions.

These results are based on multiple path simulations using an interest rate simulation model calibrated to market traded instruments. Sensitivities are measured assuming several factors including immediate and sustained parallel and non-parallel changes in market rates, yield curves and rate indexes. These factors quantify yield curve risk, basis risk, options risk, repricing mismatch risk, and market spread risk. The results are considered to be conservative estimates due to the fact that no management action to mitigate potential income variances is included within the simulation assumption set. These potentially mitigating factors include future balance sheet growth, changes in yield curve relationships, and changing product spreads. As of June 30, 2013, the projected changes for the market 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 June 30, 2013, is included in Note 10, “Derivative and Hedging Activities,” of the notes to consolidated financial statements. A discussion of the Corporation’s lending-related commitments is included in Note 12, “Commitments, Off-Balance Sheet Arrangements, and Contingent Liabilities,” of the notes to consolidated financial statements. See also Note 8, “Short and Long-Term Funding,” of the notes to consolidated financial statements for additional information on the Corporation’s short-term and long-term funding.

Table 9 summarizes significant contractual obligations and other commitments at June 30, 2013, at those amounts contractually due to the recipient, including any premiums or discounts, hedge basis adjustments, or other similar carrying value adjustments.

TABLE 9: 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	$	1,247,377	$	349,338	$	190,936	$	30,848	$	1,818,499
Short-term funding		2,764,500		—		—		—		2,764,500
Long-term funding		155,023		433,870		76		25,853		614,822
Operating leases		12,192		22,239		20,683		42,441		97,555
Commitments to extend credit		3,426,140		1,407,003		1,069,439		107,742		6,010,324
Total	$	7,605,232	$	2,212,450	$	1,281,134	$	206,884	$	11,305,700

Capital

Stockholders’ equity at June 30, 2013 was $2.9 billion, down slightly ($59 million) from December 31, 2012. At June 30, 2013, stockholders’ equity included $25 million of accumulated other comprehensive loss compared to $49 million of accumulated other comprehensive income at December 31, 2012. Cash dividends of $0.16 per share were paid in the first half of 2013 and $0.10 per share were paid in the first half of 2012. The ratio of total stockholders’ equity to assets was 12.18% and 12.50% at June 30, 2013 and December 31, 2012, respectively.

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On November 13, 2012, the Board of Directors approved the repurchase of up to an aggregate amount of $125 million of common stock to be made available for reissuance in connection with the Corporation’s employee incentive plans and / or for other corporate purposes, of which $35 million remained authorized for repurchase at June 30, 2013. On July 23, 2013, the Board of Directors approved the repurchase of up $120 million of common stock. The July 2013 repurchase authorization is in addition to the $35 million remaining under the November 2012 authorization. See Section, “Recent Developments,” for additional information on the July 2013 common stock repurchase authorization. During the first half of 2013, 4.1 million shares were repurchased for $60 million (or an average cost per common share of $14.69), while during 2012, 4.7 million shares were repurchased for $60 million (or an average cost per common share of $12.77). The Corporation also repurchased shares for minimum tax withholding settlements on equity compensation during 2012 and the first half of 2013. See Part II, Item 2, “Unregistered Sales of Equity Securities and Use of Proceeds,” for additional information on the shares repurchased during the second quarter of 2013. The repurchase of shares will be based on market and investment opportunities, capital levels, growth prospects, and regulatory constraints. Such repurchases may occur from time to time in open market purchases, block transactions, private transactions, accelerated share repurchase programs, or similar facilities.

Basel III Capital Rules. In July 2013, the Federal Reserve and the OCC, the primary federal regulators for the Corporation and the Bank, respectively, published final rules (the “Basel III Capital Rules”) establishing a new comprehensive capital framework for U.S. banking organizations. The rules implement the Basel Committee’s December 2010 framework known as “Basel III” for strengthening international capital standards as well as certain provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). The Basel III Capital Rules substantially revise the risk-based capital requirements applicable to bank holding companies and depository institutions, including the Corporation and the Bank, compared to the current U.S. risk-based capital rules. The Basel III Capital Rules define the components of capital and address other issues affecting the numerator in banking institutions’ regulatory capital ratios. The Basel III Capital Rules also address risk weights and other issues affecting the denominator in banking institutions’ regulatory capital ratios and replace the existing risk-weighting approach, which was derived from Basel I capital accords of the Basel Committee, with a more risk-sensitive approach based, in part, on the standardized approach in the Basel Committee’s 2004 “Basel II” capital accords. The Basel III Capital Rules also implement the requirements of Section 939A of the Dodd-Frank Act to remove references to credit ratings from the federal banking agencies’ rules. The Basel III Capital Rules are effective for the Corporation and the Bank on January 1, 2015 (subject to a phase-in period).

The Basel III Capital Rules, among other things, (i) introduce a new capital measure called “Common Equity Tier 1” (“CET1”), (ii) specify that Tier 1 capital consist of CET1 and “Additional Tier 1 capital” instruments meeting specified requirements, (iii) define CET1 narrowly by requiring that most deductions / adjustments to regulatory capital measures be made to CET1 and not to the other components of capital and (iv) expand the scope of the deductions / adjustments from capital as compared to existing regulations.

When fully phased in on January 1, 2019, the Basel III Capital Rules will require the Corporation and the Bank to maintain (i) a minimum ratio of CET1 to risk-weighted assets of at least 4.5%, plus a 2.5% “capital conservation buffer” (which is added to the 4.5% CET1 ratio as that buffer is phased in, effectively resulting in a minimum ratio of CET1 to risk-weighted assets of at least 7% upon full implementation), (ii) a minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the capital conservation buffer (which is added to the 6.0% Tier 1 capital ratio as that buffer is phased in, effectively resulting in a minimum Tier 1 capital ratio of 8.5% upon full implementation), (iii) a minimum ratio of Total capital (that is, Tier 1 plus Tier 2) to risk-weighted assets of at least 8.0%, plus the capital conservation buffer (which is added to the 8.0% total capital ratio as that buffer is phased in, effectively resulting in a minimum total capital ratio of 10.5% upon full implementation) and (iv) a minimum leverage ratio of 4%, calculated as the ratio of Tier 1 capital to average assets (as compared to a current minimum leverage ratio of 3% for banking organizations that either have the highest supervisory rating or have implemented the appropriate federal regulatory authority’s risk-adjusted measure for market risk).

Management believes that, as of June 30, 2013, the Corporation and the Bank would meet all capital adequacy requirements under the Basel III Capital Rules on a fully phased-in basis if such requirements were currently effective.

Management actively reviews capital strategies for the Corporation and each of its subsidiaries in light of perceived business risks, future growth opportunities, industry standards, and compliance with regulatory requirements. The assessment of overall capital adequacy depends on a variety of factors, including asset quality, liquidity, stability of earnings, changing competitive forces, economic condition in markets served, and strength of management. The capital ratios of the Corporation and its banking affiliate were in excess of regulatory minimum requirements. The Corporation’s capital ratios are summarized in Table 10.

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TABLE 10

Capital Ratios

(In Thousands, except per share data)

	Quarter Ended
	June 30,			March 31,			December 31,			September 30,			June 30,
	2013			2013			2012			2012			2012
Total stockholders’ equity	$	2,876,976		$	2,936,265		$	2,936,399		$	2,950,452		$	2,909,621
Tangible stockholders’ equity(1)		1,934,603			1,992,881			1,992,004			2,005,008			1,963,129
Tier 1 capital(2)		1,957,146			1,944,682			1,938,806			2,113,203			2,071,801
Tier 1 common equity(3)		1,893,875			1,881,410			1,875,534			1,869,931			1,828,529
Tangible common equity(1)		1,871,331			1,929,609			1,928,732			1,941,736			1,899,857
Total risk-based capital(2)		2,190,127			2,173,859			2,167,954			2,335,451			2,290,491
Tangible assets(1)		22,674,751			22,334,384			22,543,340			21,792,910			21,134,608
Risk weighted assets(2)		16,479,374			16,162,689			16,149,038			15,574,666			15,188,147
Market capitalization		2,578,765			2,546,953			2,221,268			2,259,006			2,263,549
Book value per common share	$	16.97		$	17.13		$	16.97		$	16.82		$	16.59
Tangible book value per common share		11.28			11.51			11.39			11.31			11.07
Cash dividend per common share		0.08			0.08			0.08			0.05			0.05
Stock price at end of period		15.55			15.19			13.12			13.16			13.19
Low closing price for the period		13.81			13.46			12.19			12.04			11.76
High closing price for the period		15.69			15.30			13.54			13.79			13.97
Total stockholders’ equity / assets		12.18	%		12.61	%		12.50	%		12.98	%		13.18	%
Tangible common equity / tangible assets(1)		8.25			8.64			8.56			8.91			8.99
Tangible stockholders’ equity / tangible assets(1)		8.53			8.92			8.84			9.20			9.29
Tier 1 common equity / risk-weighted assets(3)		11.49			11.64			11.61			12.01			12.04
Tier 1 leverage ratio(2)		8.73			8.78			8.98			9.99			9.95
Tier 1 risk-based capital ratio(2)		11.88			12.03			12.01			13.57			13.64
Total risk-based capital ratio(2)		13.29			13.45			13.42			15.00			15.08
Common shares outstanding (period end)		165,837			167,673			169,304			171,657			171,611
Basic common shares outstanding (average)		166,605			168,234			170,707			171,650			172,839
Diluted common shares outstanding (average)		166,748			168,404			170,896			171,780			172,841

(1) Tangible stockholders’ equity, tangible common equity, and tangible assets are non-GAAP financial measures. Additionally, any ratios utilizing these financial measures are non-GAAP measures. These financial measures have been included as they are considered to be critical metrics with which to analyze and evaluate financial condition and capital strength. Tangible stockholders’ equity is defined as stockholders’ equity excluding goodwill and other intangible assets. Tangible common equity is defined as common stockholders’ equity excluding goodwill and other intangible assets. Tangible assets is defined as total assets excluding goodwill and other intangible assets.

(2) The FRB establishes capital adequacy requirements, including well-capitalized standards for the Corporation. The OCC establishes similar capital adequacy requirements and standards for the Bank. Regulatory capital primarily consists of Tier 1 risk-based capital and Tier 2 risk-based capital. The sum of Tier 1 risk-based capital and Tier 2 risk-based capital equals our total risk-based capital. Risk-based capital guidelines require a minimum level of capital as a percentage of risk-weighted assets. Risk-weighted assets consist of total assets plus certain off-balance sheet and market items, subject to adjustment for predefined credit risk factors.

(3) Tier 1 common equity, a non-GAAP financial measure, is used by banking regulators, investors and analysts to assess and compare the quality and composition of our capital with the capital of other financial services companies. Management uses Tier 1 common equity, along with other capital measures, to assess and monitor our capital position. Tier 1 common equity is defined as Tier 1 capital excluding qualifying perpetual preferred stock and qualifying trust preferred securities.

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Comparable Second Quarter Results

The Corporation recorded net income of $48 million for the three months ended June 30, 2013, compared to net income of $43 million for the three months ended June 30, 2012. Net income available to common equity was $47 million for the three months ended June 30, 2013, or net income of $0.28 for both basic and diluted earnings per common share. Comparatively, net income available to common equity for the three months ended June 30, 2012, was $42 million, or net income of $0.24 for both basic and diluted earnings per common share (see Table 1).

Taxable equivalent net interest income for the second quarter of 2013 was $165 million, $6 million higher than the second quarter of 2012 (see Table 2). Changes in the balance sheet volume and mix increased taxable equivalent net interest income by $15 million, while changes in the rate environment and product pricing lowered net interest income by $9 million. The Federal funds target rate was unchanged for both the second quarter of 2013 and the second quarter of 2012. The net interest margin between the comparable quarters was down 14 bp, to 3.16% in the second quarter of 2013. Average earning assets increased $1.6 billion to $21.0 billion in the second quarter of 2013, with average loans up $1.1 billion (predominantly in commercial loans) and investments up $440 million. On the funding side, average interest-bearing deposits were up $1.6 billion and average demand deposits increased $497 million, while average short and long-term funding was down $492 million (primarily attributable to a $454 million decrease in repurchase agreements).

Credit quality continued to improve with nonaccrual loans declining to $217 million (1.38% of total loans) at June 30, 2013, compared to $318 million (2.16% of total loans) at June 30, 2012 (see Table 8). Compared to the second quarter of 2012, potential problem loans were down 24% to $310 million. The provision for loan losses for the second quarter of 2013 was $4 million (or $10 million less than net charge offs), compared to $0 (or $24 million less than net charge offs) in the second quarter of 2012 (see Table 7). Annualized net charge offs represented 0.35% of average loans for the second quarter of 2013 compared to 0.65% for the second quarter of 2012. The allowance for loan losses to loans at June 30, 2013 was 1.76%, compared to 2.26% at June 30, 2012. See discussion under sections, “Provision for Loan Losses,” “Allowance for Loan Losses,” and “Nonaccrual Loans, Potential Problem Loans, and Other Real Estate Owned.”

Noninterest income for the second quarter of 2013 increased $8 million (11%) to $84 million versus the second quarter of 2012. Core fee-based revenue was down $1 million (2%) from the second quarter of 2012 as improvements in most fee categories were more than offset by a $3 million decline in insurance commissions due to a $3 million reserve established in the second quarter of 2013 related to third party insurance products sold in prior years. Net mortgage banking increased $3 million from the second quarter of 2012, predominantly due to a $12 million favorable change in the valuation allowance (from an addition of $4 million in the second quarter of 2012 to a recovery of $8 million in second quarter of 2013), partially offset by $11 million lower gains on sales. Capital market fees, net increased $2 million primarily due to a favorable change in the credit risk of interest related derivative instruments. Net asset losses for the second quarter of 2013 were primarily attributable to a $2 million write-down on real estate as the Corporation continues to identify cost efficiency opportunities within its footprint, partially offset by gains from the sale of miscellaneous assets. Net asset losses of $5 million for the second quarter of 2012 were primarily attributable to a $6 million write-down on software placed into production during the second quarter of 2012, $3 million of losses on sales and other write-downs on other real estate owned, and a $3 million impairment charge on certain limited partnership investments, partially offset by a $6 million gain on the sale of three retail branches in rural western Illinois.

On a comparable quarter basis, noninterest expense increased $4 million (2%) to $170 million in the second quarter of 2013. Personnel expense increased $6 million (6%) from the second quarter of 2012, primarily in salary-related expenses (reflecting an increase in performance based incentives and merit increases between the years). Equipment and data processing combined were up $2 million (12%) from the second quarter of 2012, primarily attributable to strategic investments in our branch network, systems and infrastructure. During the second quarter of 2013 foreclosure / OREO expense decreased $2 million, due to a decline in legal and collection expenses related to the overall improvement in credit quality. All remaining noninterest expense categories on a combined basis were down $2 million (4%).

For the second quarter of 2013, the Corporation recognized income tax expense of $23 million, compared to income tax expense of $21 million for the second quarter of 2012. The effective tax rate was 32.07% and 32.52% for the second quarter of 2013 and the second quarter of 2012, respectively.

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TABLE 11

Selected Quarterly Information

($ in Thousands)

	Quarter Ended
	June 30,			March 31,			December 31,			September 30,			June 30,
	2013			2013			2012			2012			2012
Summary of Operations:
Net interest income	$	160,182		$	157,653		$	161,455		$	155,602		$	154,267
Provision for loan losses		4,000			4,000			3,000			—			—
Noninterest income
Trust service fees		11,405			10,910			10,429			10,396			10,125
Service charges on deposit accounts		17,443			16,829			16,817			17,290			16,768
Card-based and other nondeposit fees		12,591			11,950			12,690			12,209			12,084
Insurance commissions		9,631			11,763			10,862			11,650			12,912
Brokerage and annuity commissions		3,688			3,516			3,678			3,632			4,206
Total core fee-based revenue		54,758			54,968			54,476			55,177			56,095
Mortgage banking, net		19,263			17,765			13,530			15,581			16,735
Capital market fees, net		5,074			2,583			4,243			3,609			2,673
BOLI income		3,281			2,970			3,206			3,290			3,164
Asset gains (losses), net		(44	)		836			(209	)		(3,309	)		(4,984	)
Investment securities gains, net		34			300			152			3,506			563
Other		1,944			2,578			2,507			3,134			1,705
Total noninterest income		84,310			82,000			77,905			80,988			75,951
Noninterest expense
Personnel expense		99,791			97,907			98,073			95,231			93,819
Occupancy		14,305			15,662			17,273			14,334			14,008
Equipment		6,462			6,167			6,444			5,935			5,719
Data processing		12,651			11,508			11,706			11,022			11,304
Business development and advertising		5,028			4,537			5,395			5,059			5,468
Other intangible amortization		1,011			1,011			1,049			1,048			1,049
Loan expense		3,044			3,284			3,130			3,297			2,948
Legal and professional fees		5,483			5,345			8,174			7,686			5,657
Losses other than loans		1,799			(316	)		3,071			3,577			2,060
Foreclosure / OREO expense		2,302			2,422			3,293			4,071			4,343
FDIC expense		4,395			5,432			4,813			5,017			4,778
Other		13,725			13,956			13,907			13,426			14,877
Total noninterest expense		169,996			166,915			176,328			169,703			166,030
Income tax expense		22,608			21,350			13,404			20,492			20,871
Net income		47,888			47,388			46,628			46,395			43,317
Preferred stock dividends		1,300			1,300			1,300			1,300			1,300
Net income available to common equity	$	46,588		$	46,088		$	45,328		$	45,095		$	42,017
Taxable equivalent net interest income	$	165,178		$	162,743		$	166,676		$	160,870		$	159,521
Net interest margin		3.16	%		3.17	%		3.32	%		3.26	%		3.30	%
Effective tax rate		32.07	%		31.06	%		22.33	%		30.64	%		32.52	%
Average Balances:
Assets	$	23,306,220		$	23,038,708		$	22,461,886		$	22,016,748		$	21,684,600
Earning assets		20,951,244			20,680,919			20,032,432			19,659,796			19,386,046
Interest-bearing liabilities		15,988,021			15,719,383			14,840,162			14,940,697			14,922,006
Loans		15,727,807			15,448,152			15,131,102			14,916,793			14,602,602
Deposits		17,105,078			17,146,384			16,650,268			15,615,856			15,050,684
Short and long-term funding		3,074,647			2,758,923			2,638,661			3,286,943			3,566,346
Stockholders’ equity	$	2,920,994		$	2,913,499		$	2,978,618		$	2,933,710		$	2,915,322

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Sequential Quarter Results

The Corporation recorded net income of $48 million for the three months ended June 30, 2013, compared to net income of $47 million for the three months ended March 31, 2013. Net income available to common equity was $47 million for the second quarter of 2013, or net income of $0.28 for both basic and diluted earnings per common share. Comparatively, net income available to common equity for the first quarter of 2013, was $46 million, or net income of $0.27 for both basic and diluted earnings per common share (see Table 1).

Taxable equivalent net interest income for the second quarter of 2013 was $165 million, $2 million higher than the first quarter of 2013. Changes in the balance sheet volume and mix increased the taxable equivalent net interest income by $1 million and one extra day in the second quarter increased net interest income by $1 million, while changes in the rate environment and product pricing were relatively level. The Federal funds target rate was unchanged for both quarters. The net interest margin between the sequential quarters was down 1 bp, to 3.16% in the second quarter of 2013. Average earning assets increased $270 million to $21.0 billion in the second quarter of 2013, with average loans up $280 million (predominantly in commercial loans) and average investments and other short-term investments down $10 million. On the funding side, average short and long-term funding was up $316 million and average interest-bearing deposits were down $47 million (primarily money market and time deposits).

The Corporation reported another quarter of improving credit quality with nonaccrual loans of $217 million (1.38% of total loans) at June 30, 2013, down from $225 million (1.45% of total loans) at March 31, 2013 (see Table 8). Potential problem loans declined to $310 million, down $34 million from the first quarter of 2013. Annualized net charge offs represented 0.35% of average loans for the second quarter of 2013, compared to 0.38% for the first quarter of 2013. The allowance for loan losses to loans at June 30, 2013 was 1.76%, compared to 1.84% at March 31, 2013 (see Table 7). See discussion under sections, “Provision for Loan Losses,” “Allowance for Loan Losses,” and “Nonaccrual Loans, Potential Problem Loans, and Other Real Estate Owned.”

Noninterest income for the second quarter of 2013 increased $2 million (3%) to $84 million versus the first quarter of 2013. Core fee-based revenue was flat to the prior quarter as improvements in trust service fees, service charges on deposits accounts, card-based and other nondeposit fees, and brokerage and annuity commissions were offset by a decline in insurance commissions due to a $3 million reserve established in the second quarter of 2013 related to third party insurance products sold in prior years. Net mortgage banking income was $19 million, up from net mortgage banking income of $18 million in the first quarter 2013, predominantly due to a $3 million favorable change in the valuation allowance (from a recovery of $5 million in the first quarter of 2013 to an $8 million recovery in the second quarter of 2013), partially offset by $2 million lower gains on sales. Net capital market fees increased $2 million primarily due to a favorable change in the credit risk of interest related derivative instruments. The $1 million decline in asset gains / losses, net was primarily related to a $2 million real estate write-down during the second quarter of 2013 as the Corporation continues to identify cost efficiency opportunities within its footprint.

On a sequential quarter basis, noninterest expense increased by $3 million (2%) to $170 million in the second quarter of 2013. Personnel expense increased $2 million. Salary-related expenses increased $5 million, reflecting an increase in performance based incentives and severance payments, while fringe benefit expenses were down $3 million, reflecting a decrease in unemployment taxes and lower health insurance costs. Losses other than loans were up $2 million, primarily due to an increase in the provision for losses on unfunded commitments. All remaining noninterest expense categories on a combined basis were down $1 million (1%).

For the second quarter of 2013, the Corporation recognized income tax expense of $23 million, compared to income tax expense of $21 million for the first quarter of 2013. The effective tax rate was 32.07% and 31.06% for the second quarter of 2013 and the first quarter of 2013, respectively.

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 pronouncements 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 the consolidated financial statements.

In July 2013, the FASB issued an amendment to permit an entity to designate the Fed Funds Effective Swap Rate, also referred to as the overnight index swap rate (“OIS”), as a benchmark interest rate. The OIS will be included as a U.S. benchmark interest rate for hedge accounting purposes. Prior to this amendment, only interest rates on direct treasury obligations of the U.S. government and the London Interbank Offered Rate (“LIBOR”) swap rate were considered benchmark interest rates. In addition, the amendment removes the restriction on using different benchmark rates for similar hedges. This amendment is effective immediately, and can be applied on a prospective basis for qualifying new or redesignated hedging relationships entered into on or after July 17, 2013.

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Recent Developments

On July 23, 2013, the Board of Directors declared a regular quarterly cash dividend of $0.08 per common share, payable on September 16, 2013, to shareholders of record at the close of business on September 3, 2013. The Board of Directors also declared a regular quarterly cash dividend of $0.50 per depositary share on Associated Banc-Corp’s 8.00% Series B Perpetual Preferred Stock, payable on September 16, 2013, to shareholders of record at the close of business on September 3, 2013. These cash dividends have not been reflected in the accompanying consolidated financial statements.

The Board of Directors also authorized the repurchase of up to $120 million of Associated Banc-Corp common stock. This repurchase authorization is in addition to the $35 million remaining under the previously authorized common stock repurchase program announced on November 13, 2012. Repurchases under such programs are subject to regulatory approval and may occur from time to time in open market purchases, block transactions, private transactions, accelerated share repurchase programs or similar facilities.

The Board of Directors also authorized the following, subject to regulatory approval where applicable:

• the redemption of all of Associated Banc-Corp’s 9.25% Subordinated Notes due 2018 at the first redemption date; and

• the purchase of up to $10 million of Associated Banc-Corp’s 8.0% Perpetual Preferred Stock, Series B.

On August 1, 2013, the Bank’s settlement agreement relating toIn re: Checking Account Overdraft Litigation MDL No. 2036in the United States District Court for the Southern District of Florida received final approval from the court. See Item 1. Legal Proceedings.

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

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

ITEM 4. Controls and Procedures

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

As of June 30, 2013, the Corporation’s management carried out an evaluation, under the supervision and with the participation of the Corporation’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of its disclosure controls and procedures. Based on the foregoing, its Chief Executive Officer and Chief Financial Officer concluded that the Corporation’s disclosure controls and procedures were effective as of June 30, 2013. No changes were made to the Corporation’s internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act of 1934) during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. Legal Proceedings

The following is a description of the Corporation’s material pending legal proceedings.

A putative class action lawsuit,Harris v. Associated Bank, N.A. (the “Bank”), was filed in the United States District Court for the Western District of Wisconsin in April 2010, alleging that the Bank unfairly assessed and collected overdraft fees and seeking restitution of the overdraft fees, compensatory, consequential and punitive damages, and costs. The case was subsequently consolidated into the Multi District Litigation (“MDL”),In re: Checking Account Overdraft Litigation MDL No. 2036 in the United States District Court for the Southern District of Florida. A settlement agreement which requires payment by the Bank of $13 million for a full and complete release of all claims brought against the Bank received preliminary approval from the court on July 26, 2012. By entering into such an agreement, we have not admitted any liability with respect to the lawsuit. The settlement amount was previously accrued for in the financial statements. In the second quarter of 2012, the Bank settled with an insurer for a $2.5 million contribution to the settlement amount and partial reimbursement of defense costs of up to $2.1 million.

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A lawsuit,R.J. ZAYED v. Associated Bank, N.A., was filed in the United States District Court for the District of Minnesota on January 29, 2013. The lawsuit relates to a Ponzi scheme perpetrated by Oxford Global Partners and related entities (“Oxford”) and individuals and was brought by the receiver for Oxford. Oxford was a depository customer of the Bank. The lawsuit claims that the Bank is liable for failing to uncover the Oxford Ponzi scheme, and specifically alleges the Bank aided and abetted (1) the fraudulent scheme; (2) a breach of fiduciary duty; (3) conversion; and (4) false representations and omissions. The lawsuit seeks unspecified consequential and punitive damages. At this early stage of the lawsuit, it is not possible for management to assess the probability of a material adverse outcome or reasonably estimate the amount of any potential loss at this time. The Bank intends to vigorously defend this lawsuit. A lawsuit by investors in the same Ponzi scheme,Herman Grad, et al v. Associated Bank, N.A., brought in Brown County, Wisconsin in October 2009 was dismissed by the circuit court, and the dismissal was affirmed by the Wisconsin Court of Appeals in June 2011 in an unpublished opinion.

The Bank is currently subject to a Consent Order with the OCC relating to its BSA compliance. The OCC has issued a written notice to the Bank related to the Bank’s past BSA deficiencies. After the OCC’s review of the Bank’s response, the OCC may impose a civil money penalty related to these deficiencies. The Corporation is currently not able to estimate a reasonable range of losses relating to that possibility.

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

Following are the Corporation’s monthly common stock purchases during the second quarter of 2013. 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.

Period	Total Number of Shares Purchased(a)		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans		Maximum Number of Shares that May Yet Be Purchased Under the Plan(b)(c)
April 1, 2013 -April 30, 2013		—	$	—		—		—
May 1, 2013 - May 31, 2013		1,751,927		15.09		1,751,927		—
June 1, 2013 - June 30, 2013		236,171		15.09		236,171		—
Total		1,988,098	$	15.09		1,988,098		2,250,804

(a) During the second quarter of 2013, the Corporation repurchased 7,801 shares for minimum tax withholding settlements on equity compensation. These purchases are not included in the monthly common stock purchases table above and do not count against the maximum number of shares that may yet be purchased under the Board of Directors’ authorization.

(b) On November 13, 2012, the Board of Directors authorized the Corporation to repurchase up to an aggregate amount of $125 million of common stock, of which, $65 million remained available to repurchase as of March 31, 2013. After adjusting the common stock repurchase authorization for the $30 million repurchased during the second quarter of 2013 under this authorization (i.e. $35 million remains authorized for repurchase) and using the closing stock price on June 30, 2013 of $15.55, a total of approximately 2.3 million common shares remained available to be repurchased under this authorization as of June 30, 2013.

(c) The amounts presented exclude the fact that on July 23, 2013, the Board of Directors also authorized the repurchase of up to an additional $120 million of common stock, which is in addition to the $35 million remaining under the November 2012 common stock repurchase authorization. See section “Recent Developments” in Part I, Item 2 for additional information on the July 23, 2013 repurchase authorization.

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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 Christopher Del Moral-Niles, 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) Unaudited Consolidated Balance Sheets, (ii) Unaudited Consolidated Statements of Income, (iii) Unaudited Consolidated Statements of Comprehensive Income, (iv) Unaudited Consolidated Statements of Changes in Stockholders’ Equity, (v) Unaudited Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements. *

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

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SIGNATURES

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

	ASSOCIATED BANC-CORP
	(Registrant)
Date: August 2, 2013	/s/ Philip B. Flynn
	Philip B. Flynn
	President and Chief Executive Officer
Date: August 2, 2013	/s/ Christopher Del Moral-Niles
	Christopher Del Moral-Niles
	Chief Financial Officer
Date: August 2, 2013	/s/ Bryan R. McKeag
	Bryan R. McKeag
	Principal Accounting Officer

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