ASSOCIATED BANC-CORP - Quarter Report: 2019 June (Form 10-Q)

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



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

For the quarterly period ended: June 30, 2019



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

Commission file number: 001-31343

Associated Banc-Corp

(Exact name of registrant as specified in its charter)



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



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

(920) 491-7500

(Registrant’s telephone number, including area code)

(not applicable)

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

Securities Registered Pursuant to Section 12(b) of the act:



Title of each class	Trading symbol	Name of each exchange on which registered
Common stock, par value $0.01 per share	ASB	New York Stock Exchange
Depositary Shrs, each representing 1/40th intrst in a shr of 6.125% Non-Cum. Perp Pref Stock, Srs C	ASB PrC	New York Stock Exchange
Depositary Shrs, each representing 1/40th intrst in a shr of 5.375% Non-Cum. Perp Pref Stock, Srs D	ASB PrD	New York Stock Exchange
Depositary Shrs, each representing 1/40th intrst in a shr of 5.875% Non-Cum. Perp Pref Stock, Srs E	ASB PrE	New York Stock Exchange

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 ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).

Yes ☑ No ☐

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

Yes ☐ No ☑

APPLICABLE ONLY TO CORPORATE ISSUERS:

The number of shares outstanding of registrant’s common stock, par value $0.01 per share, at July 26, 2019 was 162,166,503.



ASSOCIATED BANC-CORP
Table of Contents



		Page
PART I. Financial Information

	Item 1. Financial Statements (Unaudited):	4

	Consolidated Balance Sheets	4

	Consolidated Statements of Income	5

	Consolidated Statements of Comprehensive Income	6

	Consolidated Statements of Changes in Stockholders’ Equity	7

	Consolidated Statements of Cash Flows	9

	Notes to Consolidated Financial Statements	11

	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	55

	Item 3. Quantitative and Qualitative Disclosures About Market Risk	80

	Item 4. Controls and Procedures	80

PART II. Other Information

	Item 1. Legal Proceedings	82

	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	82

	Item 6. Exhibits	83

	Signatures	84

Commonly Used Acronyms and Abbreviations

The following listing provides a reference of common acronyms and abbreviations used throughout the document:



ABS	Asset-Backed Securities
ALCO	Asset / Liability Committee
Anderson	Anderson Insurance and Investment Agency, Inc.
ASC	Accounting Standards Codification
ASU	Accounting Standards Update
the Bank	Associated Bank, National Association
Bank Mutual	Bank Mutual Corporation
Basel III	International framework established by the Basel Committee on Banking Supervision for the regulation of capital and liquidity
bp	basis point(s)
CD	Certificate of Deposit
CDI	Core Deposit Intangibles
CET1	Common Equity Tier 1
CMBS	Commercial Mortgage-Backed Securities
CMO	Collateralized Mortgage Obligations
CRA	Community Reinvestment Act
Diversified	Diversified Insurance Solutions
EAR	Earnings at Risk
FASB	Financial Accounting Standards Board
FDIC	Federal Deposit Insurance Corporation
FFELP	Federal Family Education Loan Program
FHLB	Federal Home Loan Bank
FHLMC	Federal Home Loan Mortgage Corporation
FNMA	Federal National Mortgage Association
FTP	Funds Transfer Pricing
GAAP	Generally Accepted Accounting Principles
GNMA	Government National Mortgage Association
GSEs	Government-Sponsored Enterprises
Huntington	The Huntington National Bank, a subsidiary of Huntington Bancshares Incorporated
LIBOR	London Interbank Offered Rate
LTV	Loan-to-Value
MBS	Mortgage-Backed Securities
MSR	Mortgage Servicing Rights
MVE	Market Value of Equity
NII	Net Interest Income
NPAs	Nonperforming Assets
OCI	Other Comprehensive Income
OREO	Other Real Estate Owned
RAP	Retirement Account Plan - the Corporation's noncontributory defined benefit retirement plan
restricted stock awards	Restricted common stock and restricted common stock units to certain key employees
S&P	Standard & Poor's
SEC	U.S. Securities and Exchange Commission
Tax Act	U.S. Tax Cuts and Jobs Act of 2017

Table of Contents



PART I - FINANCIAL INFORMATION

ITEM 1.	Financial Statements:

ASSOCIATED BANC-CORP

Consolidated Balance Sheets



	June 30, 2019			December 31, 2018
	(Unaudited)			(Audited)
	(In Thousands, except share and per share data)
Assets
Cash and due from banks	$	382,985		$	507,187
Interest-bearing deposits in other financial institutions	172,708			221,226
Federal funds sold and securities purchased under agreements to resell	1,385			148,285
Investment securities held to maturity, at amortized cost	2,806,064			2,740,511
Investment securities available for sale, at fair value	3,283,456			3,946,941
Equity securities	15,066			1,568
Federal Home Loan Bank and Federal Reserve Bank stocks, at cost	202,758			250,534
Residential loans held for sale	129,303			64,321
Commercial loans held for sale	11,000			14,943
Loans	23,249,967			22,940,429
Allowance for loan losses	(233,659		)	(238,023		)
Loans, net	23,016,308			22,702,406
Bank and corporate owned life insurance	668,638			663,203
Investment in unconsolidated subsidiaries	222,812			161,181
Premises and equipment, net^(a)	432,058			363,225
Goodwill	1,176,019			1,169,023
Mortgage servicing rights, net	66,175			68,193
Other intangible assets, net	93,915			75,836
Other assets^(a)	591,976			549,274
Total assets	$	33,272,628		$	33,647,859
Liabilities and Stockholders' Equity
Noninterest-bearing demand deposits	$	5,354,987		$	5,698,530
Interest-bearing deposits	19,919,235			19,198,863
Total deposits	25,274,222			24,897,393
Federal funds purchased and securities sold under agreements to repurchase	83,195			111,651
Commercial paper	28,787			45,423
FHLB advances	2,742,941			3,574,371
Other long-term funding	796,403			795,611
Accrued expenses and other liabilities	447,286			442,522
Total liabilities	29,372,835			29,866,971
Stockholders’ Equity
Preferred equity	256,716			256,716
Common equity
Common stock	1,752			1,752
Surplus	1,695,715			1,712,615
Retained earnings	2,288,909			2,181,414
Accumulated other comprehensive income (loss)	(59,063		)	(124,972		)
Treasury stock, at cost	(284,235		)	(246,638		)
Total common equity	3,643,077			3,524,171
Total stockholders’ equity	3,899,794			3,780,888
Total liabilities and stockholders’ equity	$	33,272,628		$	33,647,859
Preferred shares issued	264,458			264,458
Preferred shares authorized (par value $1.00 per share)	750,000			750,000
Common shares issued	175,216,409			175,216,409
Common shares authorized (par value $0.01 per share)	250,000,000			250,000,000
Treasury shares of common stock	12,554,448			10,775,938

Numbers may not sum due to rounding.

(a) During the second quarter of 2019, the Corporation reclassified operating leases from Other Assets to Premises and Equipment.

See accompanying notes to consolidated financial statements.

Table of Contents

Item 1. Financial Statements Continued:

ASSOCIATED BANC-CORP

Consolidated Statements of Income (Unaudited)



	Three Months Ended June 30,					Six Months Ended June 30,
	2019		2018			2019		2018
	(In Thousands, except per share data)
Interest income
Interest and fees on loans	$	260,784	$	246,646		$	519,637	$	466,680
Interest and dividends on investment securities
Taxable	26,710		30,623			55,764		60,727
Tax-exempt	14,643		10,783			28,459		20,000
Other interest	3,995		3,153			8,221		5,330
Total interest income	306,133		291,205			612,081		552,737
Interest expense
Interest on deposits	67,050		38,431			129,823		71,843
Interest on federal funds purchased and securities sold under agreements to repurchase	286		538			913		1,060
Interest on other short-term funding	37		51			88		111
Interest on FHLB advances	17,744		21,279			37,298		34,402
Interest on long-term funding	7,396		4,544			14,792		9,088
Total interest expense	92,513		64,843			182,914		116,504
Net interest income	213,619		226,362			429,167		436,233
Provision for credit losses	8,000		4,000			14,000		4,000
Net interest income after provision for credit losses	205,619		222,362			415,167		432,233
Noninterest income
Insurance commissions and fees	22,985		23,996			48,449		46,644
Wealth management fees^(a)	20,691		20,333			40,870		40,975
Service charges on deposit account fees	15,426		16,390			30,542		32,810
Card-based fees	10,131		10,115			19,392		19,557
Other fee-based revenue	5,178		4,272			9,161		8,252
Capital markets, net	4,726		4,783			7,916		10,089
Mortgage banking, net	9,466		6,258			14,178		12,628
Bank and corporate owned life insurance	3,352		3,978			7,144		7,165
Asset gains (losses), net^(b)	871		2,497			1,438		2,390
Investment securities gains (losses), net	463		(2,015		)	2,143		(2,015		)
Other	2,547		2,235			5,807		4,727
Total noninterest income	95,837		92,842			187,040		183,222
Noninterest expense
Personnel	123,228		123,980			243,279		241,665
Technology	20,114		19,452			39,126		37,167
Occupancy	13,830		15,071			30,302		30,428
Business development and advertising	6,658		7,067			13,293		13,760
Equipment	5,577		5,953			11,245		11,509
Legal and professional	4,668		6,284			8,619		11,697
Card issuance costs	1,290		2,412			2,266		4,744
Loan costs	952		761			2,316		1,733
Foreclosure / OREO expense, net	924		1,021			1,491		1,744
FDIC assessment	4,500		8,250			8,250		16,500
Other intangible amortization	2,324		2,168			4,551		3,693
Acquisition related costs^(c)	3,734		7,107			4,366		27,712
Other	9,979		11,732			20,346		21,873
Total noninterest expense	197,779		211,258			389,450		424,223
Income before income taxes	103,678		103,947			212,756		191,232
Income tax expense	19,017		14,754			41,409		32,583
Net income	84,661		89,192			171,347		158,648
Preferred stock dividends	3,801		2,329			7,601		4,668
Net income available to common equity	$	80,860	$	86,863		$	163,746	$	153,980
Earnings per common share
Basic	$	0.49	$	0.51		$	1.00	$	0.92
Diluted	$	0.49	$	0.50		$	0.99	$	0.90
Average common shares outstanding
Basic	162,180		170,633			163,049		167,096
Diluted	163,672		173,409			164,518		169,920

Numbers may not sum due to rounding.

(a) Includes trust, asset management, brokerage, and annuity fees.

(b) Both the three and six months ended June 30, 2019 include less than $1 million of Huntington related asset losses; Both the three and six months ended June 30, 2018 include approximately $1 million of Bank Mutual acquisition related asset losses net of asset gains.

See accompanying notes to consolidated financial statements.

Table of Contents

Item 1. Financial Statements Continued:

ASSOCIATED BANC-CORP

Consolidated Statements of Comprehensive Income (Unaudited)



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
	($ in Thousands)
Net income	$	84,661		$	89,192		$	171,347		$	158,648
Other comprehensive income, net of tax
Investment securities available for sale
Net unrealized gains (losses)	59,476			(18,919		)	89,966			(60,754		)
Amortization of net unrealized (gains) losses on available for sale securities transferred to held to maturity securities	218			(335		)	288			(632		)
Reclassification adjustment for net losses (gains) realized in net income	(463		)	2,015			(2,143		)	2,015
Reclassification from OCI due to change in accounting principle	—			—			—			(84		)
Reclassification of certain tax effects from OCI	—			—			—			(8,419		)
Income tax (expense) benefit	(14,940		)	4,705			(22,242		)	15,340
Other comprehensive income (loss) on investment securities available for sale	44,292			(12,533		)	65,869			(52,533		)
Defined benefit pension and postretirement obligations
Amortization of prior service cost	(38		)	(38		)	(75		)	(76		)
Amortization of actuarial loss (gain)	64			465			128			929
Reclassification of certain tax effects from OCI	—			—			—			(5,235		)
Income tax (expense) benefit	(7		)	(109		)	(13		)	(216		)
Other comprehensive income (loss) on pension and postretirement obligations	20			318			40			(4,597		)
Total other comprehensive income (loss)	44,311			(12,215		)	65,909			(57,130		)
Comprehensive income	$	128,972		$	76,977		$	237,256		$	101,518

Numbers may not sum due to rounding.

See accompanying notes to consolidated financial statements.

Table of Contents

Item 1. Financial Statements Continued:

ASSOCIATED BANC-CORP

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)



	Preferred Equity		Common Stock		Surplus			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total
	(In Thousands, except per share data)
Balance, December 31, 2018	$	256,716	$	1,752	$	1,712,615		$	2,181,414		$	(124,972	)	$	(246,638	)	$	3,780,888
Comprehensive income
Net income	—		—		—			86,686			—			—			86,686
Other comprehensive income (loss)	—		—		—			—			21,597			—			21,597
Comprehensive income																	108,283
Common stock issued
Stock-based compensation plans, net	—		—		(32,220		)	—			—			39,265			7,045
Purchase of treasury stock	—		—		—			—			—			(37,467		)	(37,467		)
Cash dividends
Common stock, $0.17 per share	—		—		—			(28,183		)	—			—			(28,183		)
Preferred stock ^(a)	—		—		—			(3,801		)	—			—			(3,801		)
Stock-based compensation expense, net	—		—		9,397			—			—			—			9,397
Other	—		—		—			(293		)	—			—			(293		)
Balance, March 31, 2019	$	256,716	$	1,752	$	1,689,792		$	2,235,824		$	(103,375	)	$	(244,840	)	$	3,835,870

Comprehensive income:
Net income	—		—		—			84,661			—			—			84,661
Other comprehensive income (loss)	—		—		—			—			44,311			—			44,311
Comprehensive income																	128,972
Common stock issued:
Stock-based compensation plans, net	—		—		(211		)	—			—			1,038			827
Purchase of treasury stock	—		—		—			—			—			(40,433		)	(40,433		)
Cash dividends:
Common stock, $0.17 per share	—		—		—			(27,776		)	—			—			(27,776		)
Preferred stock ^(a)	—		—		—			(3,801		)	—			—			(3,801		)
Stock-based compensation expense, net	—		—		6,134			—			—			—			6,134
Balance, June 30, 2019	$	256,716	$	1,752	$	1,695,715		$	2,288,909		$	(59,063	)	$	(284,235	)	$	3,899,794

Numbers may not sum due to rounding.

(a) Series C, $0.3828125 per share; Series D, $0.3359375 per share; and Series E, $0.3671875 per share.

See accompanying notes to consolidated financial statements.

Table of Contents

Item 1. Financial Statements Continued:

ASSOCIATED BANC-CORP

Consolidated Statements of Changes in Stockholders’ Equity continued (Unaudited)



	Preferred Equity			Common Stock			Surplus			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total
	(In Thousands, except per share data)
Balance, December 31, 2017	$	159,929		$	1,618		$	1,338,722		$	1,934,696		$	(62,758	)	$	(134,764	)	$	3,237,443
Comprehensive income
Net income	—			—			—			69,456			—			—			69,456
Other comprehensive income (loss)	—			—			—			—			(31,177		)	—			(31,177		)
Adoption of new accounting standards	—			—			—			—			(13,738		)	—			(13,738		)
Comprehensive income																			24,541
Common stock issued
Stock-based compensation plans, net	—			—			(7,665		)	20,136			—			(1,780		)	10,691
Acquisition of Bank Mutual	—			134			390,258			—			—			91,296			481,688
Purchase of common stock returned to authorized but unissued	—			(11		)	(26,469		)	—			—			—			(26,480		)
Purchase of treasury stock	—			—			—			—			—			(5,240		)	(5,240		)
Cash dividends
Common stock, $0.15 per share	—			—			—			(25,710		)	—			—			(25,710		)
Preferred stock ^(b)	—			—			—			(2,339		)	—			—			(2,339		)
Purchase of preferred stock	(76		)	—			—			(2		)	—			—			(78		)
Stock-based compensation expense, net	—			—			3,675			—			—			—			3,675
Tax Act reclassification	—			—			—			13,654			—			—			13,654
Change in accounting principle	—			—			—			84			—			—			84
Other	—			—			—			771			—			—			771
Balance, March 31, 2018	$	159,853		$	1,741		$	1,698,521		$	2,010,746		$	(107,673	)	$	(50,488	)	$	3,712,699

Comprehensive income:
Net income	—			—			—			89,192			—			—			89,192
Other comprehensive income (loss)	—			—			—			—			(12,215		)	—			(12,215		)
Comprehensive income																			76,977
Common stock issued:
Stock-based compensation plans, net^(a)	—			—			1,455			(485		)	—			4,486			5,456
Acquisition of Bank Mutual	—			3			6,717			—			—			—			6,720
Purchase of common stock returned to authorized but unissued	—			(3		)	(6,592		)	—			—			—			(6,595		)
Purchase of treasury stock	—			—			—			—			—			(477		)	(477		)
Cash dividends:
Common stock, $0.15 per share	—			—			—			(26,107		)	—			—			(26,107		)
Preferred stock ^(b)	—			—			—			(2,329		)	—			—			(2,329		)
Common stock warrants exercised	—			10			(10		)	—			—			—			—
Purchase of preferred stock	(452		)	—			—			(6		)	—			—			(459		)
Stock-based compensation expense, net	—			—			4,497			—			—			—			4,497
Other	—			—			—			(139		)	—			—			(139		)
Balance, June 30, 2018	$	159,401		$	1,751		$	1,704,587		$	2,070,872		$	(119,888	)	$	(46,479	)	$	3,770,244

Numbers may not sum due to rounding.

(a) As previously disclosed in Associated Banc-Corp's 2018 Annual Report on Form 10-K, an adjustment was made to the June 30, 2018 stockholders' equity balances related to the

grant and vesting of options, restricted stock awards, and restricted stock units awarded. This adjustment increased Surplus by $901 thousand, decreased Retained Earnings $1 million, and increased Treasury Stock $484 thousand. The reclassification had no impact on earnings, expenses, or total stockholders' equity.

(b) Series C, $0.3828125 per share and Series D, $0.3359375 per share.

See accompanying notes to consolidated financial statements.

Table of Contents

Item 1. Financial Statements Continued:

ASSOCIATED BANC-CORP

Consolidated Statements of Cash Flows (Unaudited)



	Six Months Ended June 30,
($ in Thousands)	2019			2018
Cash Flow From Operating Activities
Net income	$	171,347		$	158,648
Adjustments to reconcile net income to net cash provided by operating activities
Provision for credit losses	14,000			4,000
Depreciation and amortization	28,810			24,249
Addition to (recovery of) valuation allowance on mortgage servicing rights, net	146			(607		)
Amortization of mortgage servicing rights	5,448			4,649
Amortization of other intangible assets	4,551			3,693
Amortization and accretion on earning assets, funding, and other, net	14,495			423
Net amortization of tax credit investments	11,180			9,770
Losses (gains) on sales of investment securities, net	(2,143		)	2,015
Asset (gains) losses, net	(1,438		)	(2,390		)
(Gain) loss on mortgage banking activities, net	(11,172		)	261
Mortgage loans originated and acquired for sale	(459,181		)	(516,285		)
Proceeds from sales of mortgage loans held for sale	432,099			482,080
Pension Contribution	—			(31,371		)
Changes in certain assets and liabilities
(Increase) decrease in interest receivable	(11,738		)	(14,569		)
Increase (decrease) in interest payable	3,572			3,775
Increase (decrease) in expense payable	(35,516		)	20,631
Increase (decrease) in cash collateral	(38,777		)	(63,929		)
Increase (decrease) in net derivative position	(61,656		)	(34,214		)
Net change in other assets and other liabilities	6,444			65,705
Net cash provided by (used in) operating activities	70,470			116,534
Cash Flow From Investing Activities
Net increase in loans	(244,230		)	(338,781		)
Purchases of
Available for sale securities	(460,124		)	(655,949		)
Held to maturity securities	(169,775		)	(429,964		)
Federal Home Loan Bank and Federal Reserve Bank stocks	(178,363		)	(238,190		)
Premises, equipment, and software, net of disposals	(30,608		)	(23,932		)
Proceeds from
Sales of available for sale securities	934,228			493,060
Sale of Federal Home Loan Bank and Federal Reserve Bank stocks	226,139			174,506
Prepayments, calls, and maturities of available for sale investment securities	262,872			330,517
Prepayments, calls, and maturities of held to maturity investment securities	100,603			121,612
Sales, prepayments, calls, and maturities of other assets	7,064			9,640
Net change in tax credit and alternative investments	(30,814		)	(18,842		)
Net cash (paid) received in acquisition	551,250			59,472
Net cash provided by (used in) investing activities	968,242			(516,851		)
Cash Flow From Financing Activities
Net increase (decrease) in deposits	(348,344		)	(810,598		)
Net increase (decrease) in short-term funding	(45,091		)	(135,757		)
Net increase (decrease) in short-term FHLB advances	(820,000		)	(260,162		)
Repayment of long-term FHLB advances	(762,880		)	(400,000		)
Proceeds from long-term FHLB advances	751,573			1,841,965
Proceeds from issuance of common stock for stock-based compensation plans	7,872			16,147
Purchase of preferred shares	—			(646		)
Purchase of common stock returned to authorized but unissued	—			(33,075		)
Purchase of treasury stock	(77,900		)	(5,717		)
Cash dividends on common stock	(55,959		)	(51,817		)
Cash dividends on preferred stock	(7,601		)	(4,668		)
Net cash provided by (used in) financing activities	(1,358,331		)	155,672
Net increase (decrease) in cash, cash equivalents, and restricted cash	(319,619		)	(244,645		)
Cash, cash equivalents, and restricted cash at beginning of period	876,698			716,018
Cash, cash equivalents, and restricted cash at end of period	$	557,078		$	471,373
Supplemental disclosures of cash flow information
Cash paid for interest	$	178,550		$	112,392
Cash paid for (received from) income and franchise taxes	21,909			12,674
Loans and bank premises transferred to other real estate owned	5,406			21,299
Capitalized mortgage servicing rights	3,575			4,502
Loans transferred into held for sale from portfolio, net	30,597			12,709
Unsettled trades to purchase securities	136			15,339
Acquisition
Fair value of assets acquired, including cash and cash equivalents	696,013			2,569,700
Fair value ascribed to goodwill and intangible assets	29,626			258,885
Fair value of liabilities assumed	725,719			2,828,448
Equity issued in (adjustments related to) acquisition	(79		)	137

Numbers may not sum due to rounding.

See accompanying notes to consolidated financial statements.

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The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the statement of financial position that sum to the total of the same sum amounts shown in the statement of cash flows:



	Six Months Ended June 30,
	2019		2018
	($ in Thousands)
Cash and cash equivalents	$	403,693	$	385,957
Restricted cash	153,385		85,416
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows	$	557,078	$	471,373

Amounts included in restricted cash represent required reserve balances with the Federal Reserve Bank, which is included in interest-bearing deposits in other financial institutions on the face of the consolidated balance sheets. In addition, the six months ended June 30, 2018 included cash collateral for public fund customers, which is included in interest-bearing deposits in other financial institutions on the face of the consolidated balance sheets.

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Item 1. Financial Statements Continued:

ASSOCIATED BANC-CORP

Notes to Consolidated Financial Statements

These interim consolidated financial statements have been prepared according to the rules and regulations of the SEC and, therefore, certain information and footnote disclosures normally presented in accordance with GAAP have been omitted or abbreviated. The information contained in the consolidated financial statements and footnotes in Associated Banc-Corp's 2018 Annual Report on Form 10-K, should be referred to in connection with the reading of these unaudited interim financial statements.

Note 1 Basis of Presentation

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

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 consolidated balance sheets and revenues and expenses for the period. Actual results could differ significantly from those estimates. Estimates that are particularly susceptible to significant change include the determination of the allowance for loan losses, goodwill impairment assessment, mortgage servicing rights valuation, and income taxes. Management has evaluated subsequent events for potential recognition or disclosure.

Within the tables presented, certain columns and rows may not sum due to the use of rounded numbers for disclosure purposes.

Note 2 Acquisitions

Huntington Wisconsin Branch Acquisition

On February 15, 2019, the Corporation received regulatory approval for the acquisition of the Wisconsin branches of Huntington. This all cash transaction closed on June 14, 2019. The conversion of the branches happened simultaneously with the close of the transaction and the acquisition expanded the Bank's presence into 13 new Wisconsin communities. As a result of the acquisition and other consolidations, a net of 14 branch locations were added.

The Huntington branch acquisition constituted a business combination. The acquisition has been accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed, and consideration exchanged were recorded at estimated fair value on the acquisition date. The determination of estimated fair values required management to make certain estimates that are subjective in nature and may require adjustments upon the availability of new information regarding facts and circumstances which existed at the date of acquisition (i.e., appraisals) for up to a year following the acquisition. The Corporation continues to review information relating to events or circumstances existing at the acquisition date. Management anticipates that this review could result in adjustments to the acquisition date valuation amounts presented herein but does not anticipate that these adjustments will be material.

The Corporation recorded approximately $7 million in goodwill related to the Huntington branch acquisition. Goodwill created by the acquisition is tax deductible. See Note 8 for additional information on goodwill, as well as the carrying amount and amortization of core deposit intangible assets related to the Huntington branch acquisition.

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The following table presents the estimated fair values of the assets acquired and liabilities assumed as of the acquisition date related to Huntington branch acquisition:



	Purchase Accounting Adjustments			June 14, 2019
	($ in Thousands)
Assets
Cash and cash equivalents	$	—		$	551,250
Loans	(1,552		)	116,344
Premises and equipment, net	4,967			22,597
Goodwill				7,075
Core deposit intangibles (included in other intangible assets, net on the face of the Consolidated Balance Sheets)	22,630			22,630
Other real estate owned (included in other assets on the face of the Consolidated Balance Sheets)	(2,561		)	5,263
Others assets	—			559
Total assets				$	725,719
Liabilities
Deposits	$	156		$	725,173
Other liabilities	70			546
Total liabilities				$	725,719

The following is a description of the methods used to determine the fair value of significant assets and liabilities presented on the balance sheet above.

Loans: Fair values for loans were based on a discounted cash flow methodology that considered factors including the type of loan and related collateral, classification status, fixed or variable interest rate, term of loan, amortization status and current discount rates. Loans were grouped together according to similar characteristics when applying various valuation techniques.

Core deposit intangible ("CDI"): This intangible asset represents the value of the relationships with deposit customers. The fair value was estimated based on a discounted cash flow methodology that gave appropriate consideration to expected customer attrition rates, net maintenance cost of the deposit base, alternative cost of funds, and the interest costs associated with customer deposits. The CDI is being amortized on a straight-line basis over 10 years.

Note 3 Summary of Significant Accounting Policies

The accounting and reporting policies of the Corporation conform to U.S. generally accepted accounting principles and to general practice within the financial services industry. A discussion of these policies can be found in Note 1 Summary of Significant Accounting Policies included in the Corporation’s 2018 Annual Report on Form 10-K. There has been one change to the Corporation's significant accounting policies since December 31, 2018, which is described below.

Leases

The Corporation determines if a lease is present at the inception of an agreement. Operating leases are capitalized at commencement and are discounted using the Corporation’s FHLB borrowing rate for a similar term borrowing unless the lease defines an implicit rate within the contract. Leases with original terms of less than 12 months are not capitalized. For operating leases existing prior to January 1, 2019, the rate for the remaining lease term as of January 1, 2019 was used.

Right-of-use assets represent the Corporation’s right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease right-of-use assets and operating lease liabilities are recognized on the lease commencement date based on the present value of lease payments over the lease term. No significant judgments or assumptions were involved in developing the estimated operating lease liabilities as the Corporation’s operating lease liabilities largely represent future rental expenses associated with operating leases and the borrowing rates are based on publicly available interest rates.

The lease term includes options to extend or terminate the lease. These options to extend or terminate are assessed on a lease-by-lease basis and adjustments are made to the right-of-use asset and lease liability if the Corporation is reasonably certain that an option will be exercised and will be expensed on a straight-line basis.

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New Accounting Pronouncements Adopted



Standard	Description	Date of adoption	Effect on financial statements
ASU-2018-15 Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract	The FASB issued an amendment which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The amendments in this Update require an entity (customer) in a hosting arrangement that is a service contract to follow the guidance in Subtopic 350-40 to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. The amendments also require the entity (customer) to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement. The amendment was effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Entities were required to apply the amendment either retrospectively or prospectively to all implementation costs incurred after the date of adoption. Early adoption was permitted.	1st Quarter 2019	The Corporation elected to early adopt this amendment using the prospective approach. No material impact on results of operation, financial position or liquidity.
ASU 2018-09 Codification Improvements	The FASB issued an amendment which affects a wide variety of Topics in the Codification. The amendments apply to all reporting entities within the scope of the affected accounting guidance. The amendments in this Update represent changes to clarify, correct errors in, or make minor improvements to the Codification. The amendments make the Codification easier to understand and easier to apply by eliminating inconsistencies and providing clarifications. The transition and effective date guidance is based on the facts and circumstances of each amendment. Some of the amendments in this Update did not require transition guidance and were effective upon issuance of this Update. However, many of the amendments in this Update did have transition guidance with effective dates for annual periods beginning after December 15, 2018. There are some conforming amendments in this Update that have been made to recently issued guidance that is not yet effective that may require application of the transition and effective date guidance in the original Accounting Standards Update.	1st Quarter 2019	No material impact on results of operations, financial position and liquidity.
ASU 2016-02 Leases (Topic 842)	The FASB issued an amendment to provide transparency and comparability among organizations by recognizing lease assets and lease liabilities on the consolidated balance sheets and disclosing key information about leasing arrangements. This amendment required lessees to recognize the following for all leases (with the exception of short-term leases) at the commencement date: 1) a lease liability, which is a lessee's obligation to make lease payments arising from a lease, measured on a discounted basis; and 2) a right-of-use asset, which is an asset that represents the lessee's right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. This amendment was effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018. Entities are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The modified retrospective approach includes a number of optional practical expedients that entities could elect to apply. These practical expedients relate to the identification and classification of leases that commenced before the effective date, initial direct costs for leases that commenced before the effective date, and the ability to use hindsight in evaluating lessee options to extend or terminate a lease or to purchase the underlying asset. Early adoption was permitted. ASU 2018-01 permits an entity to elect an optional transition practical expedient to not evaluate under Topic 842 land easements that exist or expired before the entity's adoption of Topic 842. ASU 2018-10 was issued as improvements and clarifications of ASU 2016-02 were identified. This Update provides clarification on narrow aspects of the previously issued Updates. ASU 2018-11 was issued to provide entities with an additional (and optional) transition method to adopt the new leases standard under ASU 2016-02. ASU 2019-01 was issued to assist in determining the fair value of underlying asset by lessors, address the presentation to the statements of cash flows, and clarify transition disclosures related to Topic 250.	1st Quarter 2019	The Corporation has adopted this amendment utilizing a modified retrospective approach. At adoption, a right-of-use asset and corresponding lease liability were recognized on the consolidated balance sheets for $52 million and $56 million, respectively. See Note 18 for expanded disclosure requirements.

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Note 4 Earnings Per Common Share

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



	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2019			2018			2019			2018
	(In Thousands, except per share data)
Net income	$	84,661		$	89,192		$	171,347		$	158,648
Preferred stock dividends	(3,801		)	(2,329		)	(7,601		)	(4,668		)
Net income available to common equity	$	80,860		$	86,863		$	163,746		$	153,980
Common shareholder dividends	(27,571		)	(25,977		)	(55,650		)	(51,549		)
Unvested share-based payment awards	(205		)	(130		)	(308		)	(269		)
Undistributed earnings	$	53,085		$	60,756		$	107,787		$	102,162
Undistributed earnings allocated to common shareholders	52,690			60,446			107,098			101,677
Undistributed earnings allocated to unvested share-based payment awards	395			310			689			485
Undistributed earnings	$	53,085		$	60,756		$	107,787		$	102,162
Basic
Distributed earnings to common shareholders	$	27,571		$	25,977		$	55,650		$	51,549
Undistributed earnings allocated to common shareholders	52,690			60,446			107,098			101,677
Total common shareholders earnings, basic	$	80,261		$	86,423		$	162,748		$	153,226
Diluted
Distributed earnings to common shareholders	$	27,571		$	25,977		$	55,650		$	51,549
Undistributed earnings allocated to common shareholders	52,690			60,446			107,098			101,677
Total common shareholders earnings, diluted	$	80,261		$	86,423		$	162,748		$	153,226
Weighted average common shares outstanding	162,180			170,633			163,049			167,096
Effect of dilutive common stock awards	1,492			2,146			1,469			2,080
Effect of dilutive common stock warrants	—			630			—			744
Diluted weighted average common shares outstanding	163,672			173,409			164,518			169,920
Basic earnings per common share	$	0.49		$	0.51		$	1.00		$	0.92
Diluted earnings per common share	$	0.49		$	0.50		$	0.99		$	0.90

Anti-dilutive common stock options of approximately 4 million and 2 million for the three months ended June 30, 2019 and 2018, respectively, and 3 million and 1 million for the six months ended June 30, 2019 and 2018, respectively, were excluded from the earnings per common share calculation.

Note 5 Stock-Based Compensation

The fair value of stock options granted is estimated on the date of grant using a Black-Scholes option pricing model, while the fair value of restricted stock awards is their fair market value on the date of grant. The fair values of stock options and restricted stock awards are amortized as compensation expense on a straight-line basis over the vesting period of the grants. For retirement eligible colleagues, whose employment meets the definitions under the 2017 Incentive Compensation Plan, expenses related to stock options and restricted stock awards are fully recognized on the date the colleague meets the definition of normal or early retirement. Compensation expense recognized is included in personnel expense in the consolidated statements of income.

Performance awards are based on performance goals of earnings per share and total shareholder return with vesting ranging from a minimum of 0% to a maximum of 150% of the target award. Performance awards are valued utilizing a Monte Carlo simulation model to estimate fair value of the awards at the grant date.

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 stock options are expected to be outstanding and is estimated using historical data of stock

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option exercises and forfeitures. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. The expected volatility is based on the implied volatility of the Corporation’s stock.

The following assumptions were used in estimating the fair value for options granted in the first six months of 2019 and full year 2018:



	2019		2018
Dividend yield	3.30	%	2.50	%
Risk-free interest rate	2.60	%	2.60	%
Weighted average expected volatility	24.00	%	22.00	%
Weighted average expected life	5.75 years		5.75 years
Weighted average per share fair value of options	$4.00		$4.47

A summary of the Corporation’s stock option activity for the six months ended June 30, 2019 is presented below:



Stock Options	Shares^(a)		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value^(a)
Outstanding at December 31, 2018	5,281		$	19.09	6.18	$	12,392
Granted	1,050		22.77
Exercised	(418	)	15.68
Forfeited or expired	(85	)	23.96
Outstanding at June 30, 2019	5,828		$	19.94	6.61	$	14,870
Options Exercisable at June 30, 2019	3,631		$	18.04	5.32	$	14,016

(a) In thousands

Intrinsic value represents the amount by which the fair market value of the underlying stock exceeds the exercise price of the stock option. For the six months ended June 30, 2019, the intrinsic value of stock options exercised was approximately $3 million, compared to $9 million for the six months ended June 30, 2018. The total fair value of stock options vested was $4 million for the six months ended June 30, 2019 and June 30, 2018.

The Corporation recognized compensation expense for the vesting of stock options of $3 million for the six months ended June 30, 2019 and $2 million for the six months ended June 30, 2018. Included in compensation expense for 2019 was $1 million of expense for the accelerated vesting of stock options granted to retirement eligible colleagues. At June 30, 2019, the Corporation had approximately $6 million of unrecognized compensation expense related to stock options that is expected to be recognized over the remaining requisite service periods that extend through first quarter 2023.

The Corporation also issues restricted stock awards under the 2017 Incentive Compensation Plan. The following table summarizes information about the Corporation’s restricted stock awards activity for the six months ended June 30, 2019:



Restricted Stock Awards	Shares^(a)		Weighted Average Grant Date Fair Value
Outstanding at December 31, 2018	1,993		$	21.92
Granted	1,164		22.21
Vested	(673	)	20.49
Forfeited	(38	)	24.14
Outstanding at June 30, 2019	2,446		$	22.42

(a) In thousands

The Corporation amortizes the expense related to restricted stock awards as compensation expense over the vesting period specified in the grant's award agreement. Performance-based restricted stock awards granted during 2018 and 2019 will vest ratably over a period of three years. Service-based restricted stock awards granted during 2018 and 2019 will vest ratably over a period of four years. Expense for restricted stock awards issued of approximately $13 million was recorded for the six months ended June 30, 2019 and $6 million was recorded for the six months ended June 30, 2018. Included in compensation expense for 2019 was approximately $3 million of expense for the accelerated vesting of restricted stock awards granted to retirement eligible colleagues. The Corporation had $28 million of unrecognized compensation costs related to restricted stock awards at June 30, 2019, that is expected to be recognized over the remaining requisite service periods that extend through first quarter 2023.

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The Corporation has the ability to issue shares from treasury or new shares upon the exercise of stock options or the granting of restricted stock awards. The Board of Directors has authorized management to repurchase shares of the Corporation’s common stock in the market, to be made available for issuance in connection with the Corporation’s employee incentive plans and for other corporate purposes. The repurchase of shares will be based on market and investment opportunities, capital levels, growth prospects, and regulatory constraints. Such repurchases may occur from time to time in open market purchases, block transactions, private transactions, accelerated share repurchase programs, or similar facilities.

Note 6 Investment Securities

Investment securities are generally classified as available for sale or held to maturity at the time of purchase. The majority of the Corporation's investment securities are mortgage-related securities issued by GNMA or GSEs such as FNMA and FHLMC. Obligations of state and political subdivisions (municipal securities) make up a large percentage of the portfolio as well.

The amortized cost and fair values of securities available for sale and held to maturity at June 30, 2019 were as follows:



	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value


	($ in Thousands)
Investment securities available for sale
Residential mortgage-related securities
FNMA / FHLMC	$	182,893	$	1,646	$	(817	)	$	183,722
GNMA	1,325,739		7,942		(2,048		)	1,331,633
Private-label	805		9		—			814
Commercial mortgage-related securities
FNMA / FHLMC	20,244		858		—			21,102
GNMA	1,483,392		6,217		(19,562		)	1,470,048
FFELP asset backed securities	274,520		152		(1,535		)	273,137
Other debt securities	3,000		—		—			3,000
Total investment securities available for sale	$	3,290,593	$	16,825	$	(23,962	)	$	3,283,456
Investment securities held to maturity
U. S. Treasury securities	$	999	$	20	$	—		$	1,019
Obligations of state and political subdivisions (municipal securities)	1,913,737		68,372		(152		)	1,981,957
Residential mortgage-related securities
FNMA / FHLMC	89,078		1,143		(145		)	90,076
GNMA	321,046		3,430		(292		)	324,184
GNMA commercial mortgage-related securities	481,205		7,264		(10,948		)	477,521
Total investment securities held to maturity	$	2,806,064	$	80,230	$	(11,537	)	$	2,874,758

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The amortized cost and fair values of securities available for sale and held to maturity at December 31, 2018 were as follows:



	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value


	($ in Thousands)
Investment securities available for sale
U. S. Treasury securities	$	1,000	$	—	$	(1	)	$	999
Residential mortgage-related securities
FNMA / FHLMC	296,296		2,466		(3,510		)	295,252
GNMA	2,169,943		473		(41,885		)	2,128,531
Private-label	1,007		—		(4		)	1,003
GNMA commercial mortgage-related securities	1,273,309		—		(52,512		)	1,220,797
FFELP asset backed securities	297,347		711		(698		)	297,360
Other debt securities	3,000		—		—			3,000
Total investment securities available for sale	$	4,041,902	$	3,649	$	(98,610	)	$	3,946,941
Investment securities held to maturity
Obligations of state and political subdivisions (municipal securities)	$	1,790,683	$	8,255	$	(15,279	)	$	1,783,659
Residential mortgage-related securities
FNMA / FHLMC	92,788		169		(1,795		)	91,162
GNMA	351,606		1,611		(8,181		)	345,035
GNMA commercial mortgage-related securities	505,434		7,559		(22,579		)	490,414
Total investment securities held to maturity	$	2,740,511	$	17,593	$	(47,835	)	$	2,710,271

Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. The expected maturities of investment securities available for sale and held to maturity at June 30, 2019 are shown below:



	Available for Sale					Held to Maturity
	Amortized Cost		Fair Value			Amortized Cost		Fair Value
	($ in Thousands)
Due in one year or less	$	1,000	$	1,000		$	48,235	$	48,393
Due after one year through five years	2,000		2,000			184,581		185,909
Due after five years through ten years	—		—			479,215		491,122
Due after ten years	—		—			1,202,705		1,257,552
Total debt securities	3,000		3,000			1,914,735		1,982,976
Residential mortgage-related securities
FNMA / FHLMC	182,893		183,722			89,078		90,076
GNMA	1,325,739		1,331,633			321,046		324,184
Private-label	805		814			—		—
Commercial mortgage-related securities
FNMA / FHLMC	20,244		21,102			—		—
GNMA	1,483,392		1,470,048			481,205		477,521
FFELP asset backed securities	274,520		273,137			—		—
Total investment securities	$	3,290,593	$	3,283,456		$	2,806,064	$	2,874,758
Ratio of fair value to amortized cost			99.8		%			102.4		%

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Investment securities gains (losses), net includes proceeds from the sale of investment securities as well as any applicable write-ups or write-downs of investment securities. The proceeds from the sale and write-up of investment securities for the six months ended June 30, 2019 and 2018 are shown below:



	Six Months Ended June 30,
	2019			2018
	($ in Thousands)
Gross gains on available for sale securities	$	2,334		$	—
Gross gains on held to maturity securities	—			—
Total gains	2,334			—
Gross losses on available for sale securities	(13,636		)	(2,015		)
Gross losses on held to maturity securities	—			—
Total losses	(13,636		)	(2,015		)
Write-up of equity securities without readily determinable fair values	13,444			—
Investment securities gains (losses), net	$	2,143		$	(2,015	)
Proceeds from sales of investment securities	$	934,228		$	493,060

During the first six months of 2019, the Corporation sold $934 million of taxable, floating rate ABS and shorter duration MBS, CMBS, and CMO Agency securities, with the proceeds utilized to pay down borrowings and to reinvest into higher yielding Agency related mortgage securities with slightly longer durations, repositioning the portfolio for a stable to declining rate environment. The Corporation also donated 42,039 shares of Visa Class B restricted shares to the Corporation's Charitable Remainder Trust during the second quarter of 2019, and the subsequent sale of those shares by the Trust resulted in an observable market price. As a result, the Corporation wrote up its remaining 77,000 Visa Class B restricted shares to fair value. Based on the existing transfer restriction and the uncertainty of covered litigation, the shares were previously carried at a zero cost basis.

During the first six months of 2018, the Corporation sold approximately $40 million of lower yielding GNMA commercial mortgage-related securities. In addition, on February 1, 2018, the date the Bank Mutual acquisition was completed, the Corporation sold Bank Mutual's entire $453 million securities portfolio. The Corporation originally reinvested the proceeds from the Bank Mutual securities portfolio into GNMA residential mortgage-related securities with the goal of reinvesting future cash flows into municipal securities. That strategy was completed during August 2018.

Investment securities with a carrying value of approximately $3.3 billion and $3.0 billion at June 30, 2019, and December 31, 2018, respectively, were required to be pledged to secure certain deposits or for other purposes as required or permitted by law.

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The following represents gross unrealized losses and the related fair value of investment securities available for sale and held to maturity, aggregated by investment category and length of time individual securities have been in a continuous unrealized loss position, at June 30, 2019:



	Less than 12 months						12 months or more						Total
	Number of Securities	Unrealized Losses			Fair Value		Number of Securities	Unrealized Losses			Fair Value		Unrealized Losses			Fair Value
	($ in Thousands)
Investment securities available for sale
Residential mortgage-related securities
FNMA / FHLMC	3	$	—		$	781	14	$	(817	)	$	121,661	$	(817	)	$	122,441
GNMA	2	(602		)	53,013		13	(1,446		)	316,714		(2,048		)	369,727
GNMA commercial mortgage-related securities	—	—			—		70	(19,562		)	1,002,980		(19,562		)	1,002,980
FFELP asset backed securities	16	(1,380		)	205,710		1	(155		)	5,839		(1,535		)	211,550
Other debt securities	3	—			3,000		—	—			—		—			3,000
Total	24	$	(1,982	)	$	262,504	98	$	(21,979	)	$	1,447,194	$	(23,962	)	$	1,709,698
Investment securities held to maturity
Obligations of state and political subdivisions (municipal securities)	8	$	(12	)	$	3,962	50	$	(140	)	$	25,109	$	(152	)	$	29,071
Residential mortgage-related securities
FNMA / FHLMC	—	—			—		10	(145		)	18,474		(145		)	18,474
GNMA	1	(51		)	6,956		27	(241		)	35,339		(292		)	42,295
GNMA commercial mortgage-related securities	—	—			—		22	(10,948		)	404,790		(10,948		)	404,790
Total	9	$	(63	)	$	10,918	109	$	(11,474	)	$	483,712	$	(11,537	)	$	494,630

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, 2018:



	Less than 12 months						12 months or more						Total
	Number of Securities	Unrealized Losses			Fair Value		Number of Securities	Unrealized Losses			Fair Value		Unrealized Losses			Fair Value
	($ in Thousands)
Investment securities available for sale
U.S. Treasury securities	—	$	—		$	—	1	$	(1	)	$	999	$	(1	)	$	999
Residential mortgage-related securities
FNMA / FHLMC	15	(31		)	17,993		17	(3,479		)	189,405		(3,510		)	207,398
GNMA	12	(4,529		)	452,183		79	(37,355		)	1,598,159		(41,885		)	2,050,342
Private-label	1	(4		)	1,003		—	—			—		(4		)	1,003
GNMA commercial mortgage-related securities	—	—			—		93	(52,512		)	1,220,854		(52,512		)	1,220,854
FFELP asset backed securities	13	(698		)	142,432		—	—			—		(698		)	142,432
Total	41	$	(5,262	)	$	613,612	190	$	(93,347	)	$	3,009,417	$	(98,610	)	$	3,623,028
Investment securities held to maturity
Obligations of state and political subdivisions (municipal securities)	272	$	(2,860	)	$	313,212	752	$	(12,419	)	$	509,374	$	(15,279	)	$	822,586
Residential mortgage-related securities
FNMA / FHLMC	13	(780		)	57,896		22	(1,015		)	28,888		(1,795		)	86,784
GNMA	13	(414		)	19,822		66	(7,767		)	320,387		(8,181		)	340,209
GNMA commercial mortgage-related securities	—	—			—		25	(22,579		)	490,414		(22,579		)	490,414
Total	298	$	(4,053	)	$	390,929	865	$	(43,780	)	$	1,349,063	$	(47,835	)	$	1,739,992

Table of Contents

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

Based on the Corporation’s evaluation, management does not believe any unrealized loss at June 30, 2019 represents an other-than-temporary impairment as these unrealized losses are primarily attributable to changes in interest rates and the current market conditions, and not credit deterioration. The unrealized losses reported for municipal securities relate to various state and local political subdivisions and school districts. The unrealized losses at June 30, 2019 for mortgage-related securities have declined due to the decrease in overall interest rates. The U.S. Treasury 3 year and 5 year rates both decreased by 75 bp from December 31, 2018. The Corporation does not intend to sell nor does it believe that it will be required to sell the securities in an unrealized loss position before recovery of their amortized cost basis.

FHLB and Federal Reserve Bank stocks: The Corporation is required to maintain Federal Reserve Bank 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, 2019 and December 31, 2018, the Corporation had FHLB stock of $125 million and $173 million, respectively. The Corporation had Federal Reserve Bank stock of $78 million at June 30, 2019 and $77 million at December 31, 2018.

Equity Securities

Equity securities with readily determinable fair values: The Corporation's portfolio of equity securities with readily determinable fair values is primarily comprised of CRA Qualified Investment mutual funds. At both June 30, 2019 and December 31, 2018, the Corporation had equity securities with readily determinable fair values of $2 million.

Equity securities without readily determinable fair values: The Corporation's portfolio of equity securities without readily determinable fair values consists of Visa Class B restricted shares that the Corporation received in 2008 as part of Visa's initial public offering. During the second quarter of 2019, the Corporation donated 42,039 shares of Visa Class B restricted shares to the Corporation's Charitable Remainder Trust, and the subsequent sale of those shares by the Trust resulted in an observable market price. As a result, the Corporation wrote up their remaining 77,000 Visa Class B restricted shares to fair value. Based on the existing transfer restriction and the uncertainty of the covered litigation, the Visa Class B restricted shares were previously carried at a zero cost basis. Thus, the Corporation had equity securities without readily determinable fair values of $13 million at June 30, 2019 and $0 at December 31, 2018.

Note 7 Loans

The period end loan composition was as follows:



	June 30, 2019		December 31, 2018
	($ in Thousands)
Commercial and industrial	$	7,579,384	$	7,398,044
Commercial real estate — owner occupied	942,811		920,443
Commercial and business lending	8,522,194		8,318,487
Commercial real estate — investor	3,779,201		3,751,554
Real estate construction	1,394,815		1,335,031
Commercial real estate lending	5,174,016		5,086,585
Total commercial	13,696,210		13,405,072
Residential mortgage	8,277,479		8,277,712
Home equity	916,213		894,473
Other consumer	360,065		363,171
Total consumer	9,553,757		9,535,357
Total loans^(a)	$	23,249,967	$	22,940,429

(a) Includes $2 million and $5 million of purchased credit-impaired loans at June 30, 2019 and December 31, 2018, respectively.

Table of Contents

The following table presents commercial and consumer loans by credit quality indicator at June 30, 2019:



	Pass		Special Mention		Potential Problem		Nonaccrual		Total
	($ in Thousands)
Commercial and industrial	$	7,387,549	$	49,026	$	58,658	$	84,151	$	7,579,384
Commercial real estate - owner occupied	909,641		8,362		24,237		571		942,811
Commercial and business lending	8,297,189		57,388		82,895		84,722		8,522,194
Commercial real estate - investor	3,628,197		71,753		77,766		1,485		3,779,201
Real estate construction	1,382,502		8,720		3,166		427		1,394,815
Commercial real estate lending	5,010,699		80,473		80,932		1,912		5,174,016
Total commercial	13,307,888		137,860		163,828		86,634		13,696,210
Residential mortgage	8,206,689		641		1,983		68,166		8,277,479
Home equity	903,694		652		32		11,835		916,213
Other consumer	359,487		506		—		72		360,065
Total consumer	9,469,870		1,799		2,014		80,073		9,553,757
Total loans	$	22,777,758	$	139,660	$	165,842	$	166,707	$	23,249,967

The following table presents commercial and consumer loans by credit quality indicator at December 31, 2018:



	Pass		Special Mention		Potential Problem		Nonaccrual		Total
	($ in Thousands)
Commercial and industrial	$	7,162,370	$	78,075	$	116,578	$	41,021	$	7,398,044
Commercial real estate - owner occupied	854,265		6,257		55,964		3,957		920,443
Commercial and business lending	8,016,635		84,332		172,542		44,978		8,318,487
Commercial real estate - investor	3,653,642		28,479		67,481		1,952		3,751,554
Real estate construction	1,321,447		8,771		3,834		979		1,335,031
Commercial real estate lending	4,975,089		37,249		71,315		2,931		5,086,585
Total commercial	12,991,724		121,582		243,856		47,909		13,405,072
Residential mortgage	8,203,729		434		5,975		67,574		8,277,712
Home equity	880,808		1,223		103		12,339		894,473
Other consumer	362,343		749		—		79		363,171
Total consumer	9,446,881		2,406		6,078		79,992		9,535,357
Total loans	$	22,438,605	$	123,988	$	249,935	$	127,901	$	22,940,429

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

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

Table of Contents

The following table presents loans by past due status at June 30, 2019:



	Accruing
	Current		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Nonaccrual^(a)		Total
	($ in Thousands)
Commercial and industrial	$	7,490,030	$	4,769	$	139	$	293	$	84,151	$	7,579,384
Commercial real estate - owner occupied	940,222		2,018		—		—		571		942,811
Commercial and business lending	8,430,252		6,787		139		293		84,722		8,522,194
Commercial real estate - investor	3,776,334		1,382		—		—		1,485		3,779,201
Real estate construction	1,394,237		131		19		—		427		1,394,815
Commercial real estate lending	5,170,572		1,513		19		—		1,912		5,174,016
Total commercial	13,600,824		8,300		159		293		86,634		13,696,210
Residential mortgage	8,199,557		9,199		558		—		68,166		8,277,479
Home equity	898,550		5,176		652		—		11,835		916,213
Other consumer	356,360		1,150		688		1,795		72		360,065
Total consumer	9,454,467		15,524		1,898		1,795		80,073		9,553,757
Total loans	$	23,055,291	$	23,824	$	2,057	$	2,088	$	166,707	$	23,249,967

(a)Of the total nonaccrual loans, $90 million, or 54%, were current with respect to payment at June 30, 2019.

The following table presents loans by past due status at December 31, 2018:



	Accruing
	Current		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Nonaccrual^(a)		Total
	($ in Thousands)
Commercial and industrial	$	7,356,187	$	187	$	338	$	311	$	41,021	$	7,398,044
Commercial real estate - owner occupied	913,787		2,580		119		—		3,957		920,443
Commercial and business lending	8,269,974		2,767		457		311		44,978		8,318,487
Commercial real estate - investor	3,745,835		2,954		813		—		1,952		3,751,554
Real estate construction	1,333,722		330		—		—		979		1,335,031
Commercial real estate lending	5,079,557		3,284		813		—		2,931		5,086,585
Total commercial	13,349,531		6,051		1,270		311		47,909		13,405,072
Residential mortgage	8,200,432		9,272		434		—		67,574		8,277,712
Home equity	876,085		4,826		1,223		—		12,339		894,473
Other consumer	358,970		1,401		868		1,853		79		363,171
Total consumer	9,435,487		15,499		2,525		1,853		79,992		9,535,357
Total loans	$	22,785,019	$	21,550	$	3,795	$	2,165	$	127,901	$	22,940,429

(a) Of the total nonaccrual loans, $74 million, or 58%, were current with respect to payment at December 31, 2018.

Table of Contents

The following table presents impaired loans individually evaluated under ASC Topic 310, excluding $2 million of purchased credit-impaired loans, at June 30, 2019:



	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
	($ in Thousands)
Loans with a related allowance
Commercial and industrial	$	83,561	$	94,759	$	22,890	$	48,118	$	1,104